Cracked beams at Liverpool hospital sparked Carillion collapse

Aaron Morby 1 year ago
Share

Fixing eight cracked transfer beams at the Royal Liverpool Hospital PFI project proved a critical cost which started to set financial dominoes falling at Carillion.

Former CEO Richard Howson and chairman Phillip Green defend their actions

The problems with the huge hospital contract were revealed as MPs grilled Carillon’s management about what brought about the sudden collapse of the group.

Former chief executive Richard Howson revealed that the project caused a substantial 6-month delay for remedial works, requiring full remodelling of the building’s concrete frame and a £20m cost to fix.

Royal Liverpool Hospital NHS Trust Latest

Today in a separate development the Royal Liverpool Hospital NHS Trust chief executive Aidan Kehoe revealed talks are underway with subcontractors directly to restart work.

“At this stage the preferred option for the Hospital Company (Liverpool) is to work with the existing subcontractors and Carillion staff who have been working on the scheme to ensure continuity in the completion of the hospital.

“That involves complex discussions with the subcontractors to ensure we can get them onsite as early as possible,” added Kehoe.

The Royal Liverpool was one of four deteriorating contracts including Qatar, where Carillion was owed £200m, and the Midlands Metropolitan Hospital, where building services failed to work, that caused cashflow rapidly to dry up and led to the group’s demise.

Chairman Phillip Green said he believed there were three major factors behind the group’s ultimate failure.

He said that the level of debt from 2013 running into 2016 was too high and stemmed mainly from the acquisition early in 2014 of energy services group Eaga for around £300m.

The firm was then hit by the small number of major contracts that went very badly wrong and inability to get critical finance in the middle of January ahead of having the chance to outline refinancing plans, he added.

In a last throw of the dice Carillion approached the Government on 13 January for £160m of funding over four months and asked it to guarantee its early contractor payment facility.

This was to be match funded by banks to buy Carillion more time to launch a full-scale restructuring programme but was rejected leading to Official Receivers being called in on 14 January.

Watchdog MPs grilled directors consistently about the sudden deterioration of finances after its ‘optimistic’ annual report published in March 2017.

Howson said he believed this report was correct to sign off at the time and that reporting at Carillion had been “honest and transparent”.

He said a month later working capital concerns were raised by incoming construction division finance chief Emma Mercer. This led to KMPG’s first review in May to determine cashflow and the board taking the decision that a rights issue was urgently required.

Green said: “We removed Mr Howson as chief executive because frankly in the period May to June we had begun to lose confidence because debt had not come down, operational difficulties were increasing, we hadn’t been able to successfully do the rights issue.

“Up to that time Howson had the full confidence of the board.”

Howson remained with Carillion acting as a ‘bailiff’ flying to Qatar to try to collect cash owed to the group.

Carillion’s interim chief executive Keith Cochrane – brought in to replace Howson – and former finance director Zafar Khan denied there was any reason to believe Carillion faced major problems before the £845m writedown announced in July last year.

MPs on the Business, Energy and Industrial Strategy Committee and Work and Pensions Committee revealed they had documents that showed key Carillion investor, Standard Life, had written to Howson in 2015 warning it had concerns over financial management, strategy and corporate governance.

These concerns saw it sell its 5% stake in the company long before cracks started to appear at the company.

It was also revealed that Carillion’s acquisition of Alfred McAlpine a decade ago for £572m saw it inherit the McAlpine £110m pension deficit, which now accounts for 65% of the Carillion pension deficit, thought to stand at nearly £1bn.

Green added: “I believe all of the board and every decision we took at the time we took it was right and we had surrounded ourselves by quality advice. If we look back of course we would have taken decisions differently.”

“I have full and complete responsibility for the collapse, not culpability,” he added.

Frank Field and Rachel Reeves, co-Chairs of the joint Work and Pensions and Business, Energy and Industrial Strategy Committees inquiry into Carillion, said: “This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong.

“We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams.

“Everything we have seen points the fingers in another direction – to the people who built a giant company on sand in a desperate dash for cash.”

Carillion key financial facts

In the eight years from 2009 to 2016, Carillion paid out £554m in dividends, almost as much as the cash it made from operations.

In the five years from 2012 to 2016, Carillion paid out £217m more in dividends than it generated in cash from its operations.

Over the eight years from December 2009 to January 2018, the total owed by Carillion in loans increased from £242m to an estimated £1.3bn – more than five times the value at the beginning of the decade.

Although the July 2017 profit warning marked the beginning of the end for Carillion, it was poor decisions in the years leading up to it that caused the company serious trouble.

Of the £845m charge, Carillion said that £375m related to the UK (mostly three PPP projects) and £470m to overseas markets (mostly exiting markets in the Middle East and Canada).

Carillion has 13 UK defined benefit pension schemes with 27,000 members. The schemes have an estimated Pension Protection Fund deficit of £900m

Latest news

Laing O’Rourke director killed in car crash on way to work

Tributes to Caroline Blackman who died early on Wednesday morning en route to Hinkley
3 days ago

Kier cutting jobs on Highways England contract

More than 100 workers facing redundancy across Midlands Area 9
3 days ago

Buckingham confirmed for £120m Swansea arena

Six months of pre-construction work to now get underway
3 days ago

Two North West smart motorway projects delayed

Costain and Galliford Try jobs put back by more than a year
3 days ago

Lendlease wins £8bn Thamesmead development

Morgan Sindall beaten in race for 11,500 home site
3 days ago

Government pledges £80m for Dawlish sea wall project

South Devon railway sea wall will be rebuilt and increased in height by 2.5m
3 days ago

30 jobs lost as Yorkshire precast firm collapses

Rippon-based Ebor Concretes placed in administration
3 days ago

Go-ahead for 200-home Cardiff build-to-rent scheme

Work to start on central Cardiff scheme this summer
4 days ago

Balfour renews £220m London Tube track upkeep

Four-year term will start in April with option to extend by six years
4 days ago

Boost your online presence – join the Enquirer Directory

New site for suppliers and buyers showcases products, services and latest stories
10 months ago

Bouygues paid £21m not to build Garden Bridge

Transport for London documents detail £53.5m wasted on doomed crossing
5 days ago

Government signs off £250m for major housing projects

Deal to release £157m for housing infrastructure in Cumbria and Devon
4 days ago

Beetham Tower owner faces £4m reclad bill

Owner will have to foot remedial facade works bill in wake of Carillion collapse
4 days ago

WYG profit warning sees share price crash 40%

Consultant back in talks with lenders over breaching banking covenants
5 days ago

United Living hires former Wates business director

Michael Holling takes role as northern and Midlands operations director after 24 years at Wates
4 days ago

Union demands death benefits for all construction workers

Unite says lack of employer-paid cover should be as unacceptable as not wearing a hard hat on site
5 days ago

Scaffold collapse on school misses kids by metres

Court hears how untied scaffold fell into Welsh school
5 days ago

Galliford Try construction hit by more Aberdeen bypass losses

Another £26m hit on bypass plunges construction into red in first half
5 days ago

Council terminates Lakehouse school contract

Willmott Dixon takes over site hit by "performance and project delays"
5 days ago

Government infrastructure pipeline needs reality check

Call for Treasury to drop project 'wishlist' for certain Pledged Projects List
5 days ago

Council seeks partner for Birmingham Ladywood Estate

Major regeneration plans at Ladywood and Perry Bar to boost city's housing stock
5 days ago

Willmott Dixon wins £21m Wakefield swimming pool

Work to start next month on Pontefract Park leisure centre
5 days ago

Weston and Tesco plan to turn store site into 1,400 homes

Application set to go in for major mixed-use development in east London
5 days ago

Network Rail unveils major operational shake-up

Devolved operating model moves from eight to 13 routes
6 days ago

Subcontractors wanted across Nottingham

Big name contractors and clients looking to boost supply chains: Register now for Meet the Buyer event
5 days ago

Bidding starts for £18m Helensburgh leisure centre

Argyll and Bute Council hopes to start work on seafront leisure centre and swimming pool this year
6 days ago

Interserve ‘fit for growth’ director exits

Dougie Sutherland merged UK and International construction businesses
6 days ago

Rail minister says HS2 doubts are “complete nonsense”

Government says its commitment to construction of the full route is "undiminished"
6 days ago

Go-ahead for Manchester Airport beauty group hub

Three contractors chase £31m deal for The Hut Group studio
7 days ago

Drink driver careers through roadworks

Jailed driver was three times over the limit when he crashed into a construction vehicle
6 days ago

Contractor services