Another billion for Carillion

The Carillion Values

The news this week has been about the crash of Carillion, one of the half-dozen big facilities management conglomerates that feed on public services that have been outsourced by government departments and its agencies. It is no surprise that Carillion has gone into liquidation. As austerity has squeezed public expenditure and reduced the number of capital projects and inflation has spiralled, the price of successful bids and contracts are no longer the cash cows they were previously. Carillion has long been notorious for subcontracting to smaller companies and only paying them after 120 days if they are lucky.

The government, the opposition and the regulators are falling over each other to divert the blame for the collapse. The easy targets are the management with excessive pay to senior executives. Whilst not disputing that management has been guilty of maladministration, politicians and most of the media are not prepared to analyse or acknowledge that their decisions have led to this state of affairs.

Carillion was formed by the merger and acquisition of some formerly well-respected companies such as Tarmac, Mowlem, Alfred McAlpine, and part of the Laing Group that had expertise in construction. They were corralled into Carillion which expanded rapidly by acquisitions and leveraged into debt that allowed hedge funds to make short-term financial gains. They had targeted PFI contracts introduced by the John Major government and continued by Blair and Brown as they sought to reduce public expenditure by the expedient of private finance. This gave the government the excuse to claim financial prudence at the same time as creating significant increases in long-term costs for the government and its agencies. Health authorities and Councils were also forced to adopt this method of capital funding.

Carillion is led by Phillip Green, no, not the already disgraced one who stripped the retail sector of its profits and pension funds. This one has yet to be disgraced. He was David Cameron's adviser on corporate responsibility. This was a strange appointment because the pensions ombudsman had found him in breach of trust in mismanaging the coloroll pension fund when he was the Managing Director.

There is nothing strange about a hedge fund selling short the company's shares in the expectation of making a sizeable profit when the share price collapses. They simply kept the dividends flowing and loss-making work was sidled off to subcontractors. Then they reduced the terms and conditions and extended the pay dates and abracadabra, the workers and subcontractors could bear the costs, and consequences and become the scapegoats whilst the hedge fund scurried away with the cash.

Carillion had extensive experience and technical management who had worked for successful construction companies and many of its big construction contracts were carried out with positive outcomes. Unfortunately, they had many important public works contracts (costing the government over £100m) that have been sacrificed on the altar of financial hedgery-pokery. The dark arts of British capitalism are not dead. However, it is the government that has failed to regulate the city and its crypto bandits. With Brexit dominating the life and death of this government and its total disregard for tackling real issues, this is not going to be resolved soon. The treasury and ministers have transferred too many public services into the responsibility of companies like Carillion and, at the same time, reduced the capacity and accountability that were vested in democratic bodies. The problem is that the risk remains with the government. They are trapped in a financial catastrophe of their own making.