The collapse of engineering giant Carillion will cost taxpayers an estimated £148 million and have a significant impact on workers, investors and firms which supplied it with goods, a report reveals.
The National Audit Office said it could take years to establish the final cost of the liquidation, while the £2.6 billion pension liabilities will have to be compensated through the Pension Protection Fund.
A report into the Government’s handling of the crisis said Carillion’s non-government creditors are unlikely to recover much of their investment.
The scale of a profit warning issued by Carillion last July came as a “surprise” to the Government, said the NAO.
The Cabinet Office began contingency planning for the possible failure of Carillion shortly after the profit warning, accelerated the process in October, and it was complete by January 15 when Carillion collapsed, said the report.
Carillion’s 2016 accounts were published in March 2017 and showed the company as profitable and solvent.
The Cabinet Office raised Carillion’s risk rating from amber to red in response to the July 2017 profit warning, but it did not increase it to the highest risk as it did not want to risk precipitating Carillion’s financial collapse, said the NAO.
“In the months following Carillion’s first profit warning, the company announced £1.9 billion of new Government work, including £1.3 billion of HS2 contracts.
“Many of these contracts had been agreed before the profit warning, although in some cases contracts were signed, or variations agreed, afterwards,” said the report.
Carillion asked the Government for £223 million in January to help it through to April and additional support with its financial restructuring, said the report, adding: “Rather than provide this, the Cabinet Office decided it was better that Carillion enter into a trading liquidation, because it had serious concerns about Carillion’s business plans, the legal implications, potential open-ended funding commitments, the precedent it would set, and the concern that Carillion would return with further requests.”
Throughout this process, the Government has been clear that its priority is to ensure that public services continue to run smoothly and safelyCabinet spokesman
Around two-thirds of Carillion workers – 11,638 – have found new jobs but more than 2,300 have been made redundant and 3,000 are still employed on contracts.
Amyas Morse, the head of the NAO, said: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts.
“Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened. Government has further to go in developing in this direction.”
A Cabinet Office spokesman said: “Throughout this process, the Government has been clear that its priority is to ensure that public services continue to run smoothly and safely.
“The plans we put in place have ensured this, and we continue to work hard to minimise the impacts of the insolvency, having safeguarded over 11,700 jobs to date.
“We are grateful to the NAO for their report, and will consider their findings.”
Tim Roache, GMB general secretary, said: “This report is damning.
“Carillion held £1.7 billion of public contracts, but this report suggests that ministers were working for the company, not the other way around.
“The same corporate bosses who are responsible for Carillion’s failure pocketed millions while going cap in hand to the taxpayer, begging for help to prop up their failing business model.
“It’s another example of how privatised public services are failing the public on an epic scale.
“We have to call time on the failed experiment of privatisation in our public services, and get back to services run for people, not profit.”
Frank Field, chairman of the Work and Pensions Committee, said: “This invaluable report adds new weight to what we found: Carillion hoodwinked the Government as they did many others who were so naive as to trust their published accounts.
“But the NAO’s explanations of why common or garden UK public sector construction contracts failed betray extraordinarily negligent planning.
“Surely they could not have been so incompetent? It is difficult to shake the impression that this was conscious cash-chasing, bugger the long-term consequences and bugger the interests of suppliers, workers and pensioners.
“As Special Managers, with a contract to print money awarded without any competition, PwC will draw £50 million for six months’ work. More money for PwC is less money for sub-contractors and the PPF.
“We have further questions about those payments — and how PwC’s conflicts of interest arising from their long history of work on Carillion are being managed — and have written to PwC and the Official Receiver requesting further information. I am particularly concerned that PwC’s conflicts could jeopardise action against individual directors.”
Jon Trickett, shadow minister for the cabinet office, said: “The Government’s dogmatic commitment to the failed outsourcing ideology blinded it to the large risks. The Tories were more concerned about the commercial interests of big business than protecting taxpayers’ money or public services.”
The NAO report said: “In the months following Carillion’s first profit warning, the company announced £1.9 billion of new Government work, including two joint venture contracts with HS2 worth £1.3 billion.”