Cracked beams at Liverpool hospital sparked Carillion collapse

Aaron Morby 8 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

Crest Nicholson sounds profit warning

Build rates to be slowed down as London and the south suffers from lack of buyers
2 hours ago

Welsh ministers look to rebid £1.3bn M4 relief road

Cost-saving plan to split 23km Costain/Vinci motorway scheme into three contracts
2 hours ago

Bouygues confirmed for £250m Cavendish labs

Cambridge University signs contract for 354,000 sq ft physics complex
2 hours ago

Balfour Beatty renews £2.1bn Scape UK civils deal

Contractor reappointed as sole supplier for infrastructure across the UK
3 hours ago

Muirfield boss banned after creaming cash from failed firm

Ex chairman gets nine-year director disqualification after siphoning off £880,000
3 hours ago

Ex-Bouygues director joins Speller Metcalfe

Martyn Chaplin joins the Midlands builder after 15 years with Thomas Vale and Bouygues UK
2 hours ago

Warden Construction wins £26m Sheffield student job

Work to start in February on 289-bed scheme in St Vincent’s Quarter
3 hours ago

Galliford Try JV starts £20m Burton-on-Trent flood defence job

Bleak & Veatch is also on board to deliver 4km of river defences
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
6 months ago

Bellway sets aside almost £6m for post-Grenfell recladsd

Estates in East London and Cardiff Bay to be reclad
1 day ago

New firm set up at same address as South Eastern Electrical

New business incorporated just weeks before M&E specialist filed for administration
1 day ago

Banks cut lending to construction firms

Post-Carillion squeeze in bank lending to construction
1 day ago

North Midland scoops £225m South West Water alliance deal

H5O Alliance will be worth £25m-£45m a year to North Midland Construction
1 day ago

Metal Yapi wins major facade package from Mace

Specialist lands deal at Olympic park to clad residential towers
1 day ago

ISG wins £26m Wolverhampton Uni college rebid

New School of Architecture and Built Environment will be built at the former Springfield Brewery site
1 day ago

Staffordshire Uni submits plan for £40m skills hub

Site clearance to start in New Year for Spring 2019 building start
1 day ago

TfL and Pocket Living tie-up for cheap London homes

Cut-price flats to be built on TfL sites
1 day ago

Forecasters cancel 2019 construction rebound as orders fall

2019 construction growth forecast downgraded from 2.6% to just 0.6%
2 days ago

Worker loses arm in brick machine accident

Materials giant fined £200,000 after chargehand dragged into machine
2 days ago

Galliard Homes plans £500m Birmingham push

Housebuilder links-up with developer Apsley House Capital to build "London-style" apartments
2 days ago

Balfour confirmed for £85m London student scheme

Vine Street scheme will deliver 654 student beds across a 14 storey building
2 days ago

CEG submits plan for £79m Manchester resi scheme

21-storey mansion block planned next to Arndale Centre
2 days ago

£490m eastern area highways upkeep out to bid

Combined area 6 and 8 upkeep to be subject to 3-year service reviews over 15-year contract
2 days ago

Adenstar to pave way for £150m Sussex site

£15m infrastructure package to get underway in January
2 days ago

Alun Griffiths wants to meet new suppliers in South West

Meet the Buyer and recruitment event in Exeter: Register your interest now
3 days ago

Murphy cancels Christmas party as job cuts loom

Redundancies planned as slow down in growth predicted next year
5 days ago

Tideway boss to chair Construction Leadership Council

Andy Mitchell takes over from former Crossrail chief Andrew Wolstenholme
5 days ago

McLaren tipped for £120m Leicester City training complex

Planners give green light to stunning designs by architect KSS
5 days ago

Moda Living funding deal for seven build-to-rent jobs

Projects in Liverpool, Leeds, Birmingham, Edinburgh and Glasgow get green light
5 days ago

Yorkshire fit-out firm folds after 150 years

21 jobs axed as H. Waterhouse & Sons falls into administration
5 days ago

Contractor services