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Carillion fails.

Publication: 
Editorial Staff
chiefofficersnet

Carillion is one of the UK's largest companies. But at 7 am, UK time, this morning, the company's board issued a statement that took no one by surprise. We've been here before - frantic over-weekend meetings, men in dark suits (these days there are women, too) strutting in with their brief-cases, the expectation of an enormous payday always puts a spring in the step of insolvency practitioners. Men in pin-striped suits leaving meetings stony faced: they are the bankers who decided that their duty to their shareholders exceeded their desire to prevent collapse. The shell-shocked directors who, as soon as they sign-off on the appointment of liquidators lose all authority, now only facing only a series of interviews with insolvency practitioners, possibly prosecutors, certainly Parliamentary Select Committees. And that's before the political fall-out starts in earnest.

The collapse of Carillion is going to turn bloody, and rightly so. What the failure has demonstrated is the danger that arises when an industry is concentrated in a handful of companies. It also shows the fallacy of engaging what amounts to a lead-consultant who then farms out the work, in just the same way as all manner of services contracts are meted out by governments and supra-national bodies around the world. The UK has thousands of construction companies, perhaps even tens of thousands. But they don't get to bid for big contracts. The contracts are bid for by one of a tiny number of companies considered big enough to handle large contracts.

Carillion's own website says "Our vision is to be the trusted partner for providing services, delivering infrastructure and creating places that bring lasting benefits to our customers and the communities in which we live and work." In short, their objective is to act as project supervisors while still having some input into architecture and planning, for example. But it is the part of their website dealing with Central Government that raises eyebrows. They say "Through our partnerships with government, Carillion is well positioned both at the front-end delivery of vital public services and at the heart of policymaking." That is something that may well come back to haunt them when the hard questioning starts as to how they came to be awarded major UK government contracts after issuing profit warnings.

Carillion's head offices in Wolverhampton match the design of those of Tarmac and Wimpey, housebuilders who created monolithic brick-built offices in broadly the proportions of a house-brick. It's not too much of a surprise: in July 1999, Tarmac hived off its construction contracting division and that became Carillion, named after an obscure medieval musical instrument. As the UK's construction industry has peaked and troughed, Carillion took over some big names: Mowlem, Alfred McAlpine and some less well known. Those two companies, in particular, were into what might be termed "heavy construction" including major plants, motorways and the like. And so, the ability to undertake large scale infrastructure projects, so far as the UK market was concerned, became heavily concentrated.

Indeed, the Carillion collapse might trigger an EU investigation into how and why EU companies did not win contracts when governments are supposed to not favour their own corporate citizens. But that's an argument for another day and one suspects that Junker will keep that one up his sleeve until he feels he can use it to advantage in the Brexit negotiations.

hahagotcha