At the start of last year, the collapse of Carillion came as a shock to many with a huge cloud of uncertainty suddenly shrouding the construction sector. Many questions suddenly sprung to mind, including what effect this would have on sub-contractors and uncompleted projects, not to mention the impact on jobs and pensions.

According to many industry experts though, the spectacular downfall of the UK’s second biggest construction industry was inevitable, especially with the £1.3 billion of senior debt hovering over the company and a pension deficit of more than £600 million. Throw in the £1.5 billion it owed to its 30,000 supply chain and you get an idea of the enormous strains the company was operating under. In fact, with such huge debt, it was no surprise that many were suggesting that Carillion had in fact been trading whilst being insolvent for many years.

Ones immediate thoughts turned to its employees – somewhat 3,000 of them, who were subsequently made redundant, with many other workers in the supply chain also losing their jobs. This of course created outrage amongst the employees, many of whom had been with the company several years and whose livelihood was suddenly severely affected. Interestingly, 10 percent of the redundancies were apprentices, who were studying to be qualified in construction.

You and I – the taxpayer were also affected, with the cost of Carillion’s collapse well in excess of £150m to the public, with a large chunk of it going to the accountants PWC who were brought in to act as ‘special managers’. PWC were tasked with the break-up of the company, making employees redundant and transferring outsourced contracts to new providers. To give one example into the ramifications for the taxpayer, the cost of making Carillion staff redundant was estimated to be at £65m.

State of the market

Not surprisingly, over the past 12 months, the construction industry has continued to be under considerable strain with margins across the sector remaining historically low. In addition, the cost of labour and materials have increased due to several reasons which include the fall in the value of the pound, increase in the minimum wage and the uncertainty surrounding Brexit. The slowdown in investment in major commercial projects has also been blamed on the economic uncertainty caused by the UK’s decision to leave the European Union and the lack of clarity provided by the government as to what this would mean for businesses in the sector. Nevertheless, Carillion’s collapse has had a direct impact and strain on some public services, in particular, the NHS. For example, two multi-million-pound construction projects have been delayed – one of these being City Hospital in Birmingham, where plans to have it refurbished are on hold meaning it is currently left with inadequate facilities, with the other being the Royal Liverpool University Hospital.Other significant factors which have affected the industry is the issue of skills shortages in the labour force with many EU workers now seeking employment elsewhere. The banks have also played their part and have become warier about lending to the sector having tightened their lending criteria in general.

Insolvencies in the construction sector are on the up

It is no surprise to see a plethora of insolvencies occur as a result of Carillion’s collapse in January 2018. According to Dun & Bradstreet data published in November 2018, construction insolvencies in Q3 2018 reached 677, in comparison with 340 recorded in Q3 in 2016. Although it is harsh to solely blame the rise of insolvencies on the collapse of Carillion alone, especially factoring in reasons such as the impact of Brexit, the demise of Carillion exposed the vulnerability of the construction supply chain and in particular, the critical issue of the timing of payments down the supply chain. During extreme financial distress, stretching your supplies is often a common tactic to help with immediate cashflow issues. However, Carillion’s suppliers had been pushed out to 120-day payment terms via supply chain finance, multiplying the magnitude of the impact of Carillion’s insolvency on those worst placed to absorb it.

In the aftermath of all of this, several suppliers who had large sums of revenues tied up on key contracts with Carillion or worked almost exclusively for them also filed for insolvency, directly citing Carillion’s demise as the root cause of their own.

All in all, it is not inconceivable that further insolvencies could follow especially given the enormity of Carillion’s supply chain and the fact that the full effect of its failure has not been felt. For example, most recently, the construction firm, Interserve, fell into administration and into the hands of its lenders after failing to secure shareholder backing for a controversial rescue plan. The company which holds crucial Government contracts for a range of services in hospitals, schools and prisons was immediately sold to its lenders in the form of a pre-pack administration, meaning that it would continue to operate for its customers and suppliers, thus avoiding a Carillion style collapse. On a positive note, the company’s 45,000 employees will be retained. Nonetheless, the collapse of Interserve has caused anger from unions who claim that ministers have learnt very little from the Carillion case and lambasted its mismanagement for putting jobs on the line and putting public services in jeopardy.

Despite the scale of Carillion’s collapse, no action has yet to be taken on any of its directors or senior management team, despite investigations by the regulator into accountants and auditors, the Financial Reporting Council (FRC), and the Insolvency Service.

Seek advice as early as possible

Whilst uncertainty is likely to last for some time in the construction sector, especially when looking at the current state of the market and continued requirement for reform in the industry, one can certainly draw the conclusion that Carillion’s collapse has left a volatile scenario. Add this to the increase in the number of insolvencies and the retail crisis witnessed over the past 12 months or so, it is certainly a tough market to be in now. It is therefore imperative to seek regulated advice as early as possible and to understand all the options available on the table if you are worried by how your business could be affected by Carillion’s collapse.

For more information please contact our PCR Head Office on 0208 841 5252 or alternatively contact us at This email address is being protected from spambots. You need JavaScript enabled to view it.. We will treat all enquires with strict confidentiality.

You can also contact us on the above regarding any insolvency procedures in general to arrange a FREE initial consultation with one of our Insolvency Practitioners. Furthermore, you can contact us on our Priority Contact Form, where we will look to get back to you as soon as possible.

Ahmed Ali
Practice Development Executive 

All contents Copyright © PCR (London) LLP unless otherwise noted. None of the elements on this website may be reused without permission.