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

Galliford Try confirms 350 construction job cuts

Slimmed-down division to focus on building,water and highways
15 hours ago

Kier wins £20m Sheffield Park Hill student scheme

Flats at iconic estate will be converted into 356 student homes
1 hour ago

Site inductions to contain modern slavery warnings

How to spot labour exploitation now explained alongside traditional health and safety briefing
5 hours ago

Dawnus went down owing supply chain more than £40m

Subcontractors left in the lurch again following latest collapse
14 hours ago

Plastic road built on new housing development

Springfield Properties recycles waste plastic to help build new road
10 hours ago

Interserve benched on £1bn Welsh framework

SEWSCAP 3 deal: Details of latest winners
1 day ago

BAM Nuttall profit hits 10-year high

Operating margin back to 3% as profit tops £26m
1 day ago

Diversification shields Keltbray from demolition slowdown

Contractor looking at new markets as core commercial workloads fall
15 hours ago

Robertson lures property boss from Henry Boot

Nick Harris joins from one of contractor's biggest clients
1 day ago

Esh gears up for £36m Sunderland road job

Esh mobilises to start phase 3 of city strategic corridor
23 hours ago

London office work shifts towards major refurb projects

London crane survey shows little sign of Brexit blues
2 days ago

US consultant Tetra Tech to buy WYG for £43m

WYG board backs 55p a share offer at big premium to 16p share price
2 days ago

Boost your online presence – join the Enquirer Directory

New site for suppliers and buyers showcases products, services and latest stories
1 year ago

Prater soars past £100m revenue

Envelope specialist optimistic 2019 will see another year of growth
2 days ago

Construction to start on new Farringdon scheme this year

Helical and AshbyCapital acquire Charterhouse Place
2 days ago

VolkerFitzpatrick wins £27m rail station upgrade

Two stations to be upgraded in Cambridge and King’s Lynn enhancements
2 days ago

Joiner hit in face by falling steel beam

House builder fined £60,000 for lack of site supervision
2 days ago

Major contractors going cool on road maintenance market

Highways England taking more work in-house and looking to work direct with supply chain
5 days ago

Infrastructure project final costs average 80% above bid prices

Success measures for projects should shift from an over-focus on costs towards whole-life benefit
5 days ago

Newcastle firm targets £50bn London rooftop homes sector

High Street Group buys London rooftop penthouse firm
5 days ago

London Bridge 39-storey student tower approved

Student accommodation projects return to the Capital
5 days ago

Kier clinches £22m Paisley town hall revamp

Main construction to start early next year
5 days ago

Consultation opens on £1bn trans-Pennine A66 dualling

Plan to dual eight stretches of highway from Penrith and Scotch Corner
5 days ago

Kier project and commercial teams at loggerheads

Insiders reveal tension between teams on major projects
6 days ago

Lords call for HS2 rethink to secure northern upgrades

Warning that HS2 costs are out of control
6 days ago

Margins rising as nmcn enjoys strong start to the year

Water business surging ahead as new housing division expands
6 days ago

Durkan names new CEO as revenue rises to £165m

Ronan Murphy promoted and plans to double revenue in five years
6 days ago

Wates submits first phase of £1bn London housing plan

Havering Council and Wates Residential submit plans for Napier and New Plymouth House site
6 days ago

Affordable and build to rent homes lift Countryside

House builder's modular timber panel factory in Warrington now fully operational
6 days ago

Partner wanted for £800m Salford Crescent plan

Preferred bidder to be named before the end of this year
7 days ago

Contractor services