Cracked beams at Liverpool hospital sparked Carillion collapse

Aaron Morby 6 months 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

Leading steel fabricator falls into administration

Rippin goes under due to slow paying customers and orders slowing down
35 mins ago

Spurs confirm stadium opening delay

Tottenham holding urgent talks with Mace and trade contractors
17 hours ago

Crane drivers threaten “autumn of anarchy”

Unite members at mobile giant Ainscough in strike threat
24 hours ago

Plan submitted for vast York Central redevelopment

Work on York 45ha railway land redevelopment could start next year
8 hours ago

Construction start date for office scheme next to Crossrail

Workspace giant HB Reavis acquires Farringdon site
8 hours ago

Road and commercial delays hit Polypipe profits

Residential sector still booming and materials giant confident about rest of the year
8 hours ago

Boot submits Nottingham £60m warehousing scheme

Building work set to start by autumn 2019
9 hours ago

Ikon blames collapse on site death investigation

Trade creditors owed more than £9m as assets sold to new firm set up by former directors
1 day ago

Construction Enquirer Awards Top Ten winners revealed

More than 15,000 votes cast already. Book now for the big night
1 day ago

£560m Welsh healthcare framework winners

Four contractors secure NHS Wales major project pipeline
2 days ago

Balfour Beatty starts Mayfair luxury flats

Luxury 32-flats scheme is being built at 60 Curzon Street
1 day ago

Boost your online presence – join the new Enquirer Directory

New site for suppliers and buyers will showcase their products, services and latest stories
3 months ago

Yorkshire Water starts bid race for £1bn AMP 7 work

Selected firms will deliver works not covered by tier one alliance partners
1 day ago

Plans in for £350m Leicestershire warehouse hub

IM Properties submits plan for 3.6m sq ft logistics hub near the M42
1 day ago

Redrow plots £180m Brentford mixed-use scheme

House builder teams up with social housing provider for 450-flat London scheme
1 day ago

Galliford Try wins £11m Coventry swimming pool

Olympic-size pool to be built within leisure centre on 3G football pitch site
2 days ago

Track workers dive for their lives to avoid 125mph train

Agency staff scared to challenge unsafe system of work
5 days ago

Green light for 540-home Shoreham harbour resi scheme

Southern Housing Group to start 10-building development at disused Wharf
4 days ago

CBI calls for honest immigration debate to keep sites going

Business leaders want Theresa May to drop Post Brexit targets
4 days ago

Former Carillion MD to lead Balfour/Vinci HS2 team

Mark Davies appointed managing director of rail joint venture
5 days ago

Bristol Water seeks firms for £100m pipeline upkeep

Suppliers' day in Bristol later this month to set out plan to tackle leaks
4 days ago

H&V workers agree 5% pay rise over two years

Hourly rate to rise 2.5% in October with further 2.75% rise next year
4 days ago

Betting Spy: Liverpool to chase home Man City this season

Straight league forecast pays 13/5 while Burnley and Bournemouth can land an opening weekend double
4 days ago

Contract race starts to patch-up Carillion hospital

OJEU notice for deal worth up to £20m to secure stalled Midland Metropolitan Hospital
5 days ago

Balfour agrees North West highways umbrella company ban

Union Unite targets highways maintenance work in crusade against umbrella firms
5 days ago

Investing in people pays off for North Midland

Turnaround continues at contractor despite ongoing telecomms problems
5 days ago

Plans in for £100m phase one Swansea Central scheme

Bids due in this month on arena project
5 days ago

Graham wins £25m Procter & Gamble R&D facility

Reading Gillette innovation centre to be doubled in size
5 days ago

Kier scores July contracts league double

Move into shed and industrial sector helps to lift Kier
7 days ago

Opinion: Are all politicians completely useless?

Yes - and senior civil servant are just as bad
6 days ago

Contractor services