Carillion Goes Into Liquidation

After weeks of speculation, and last minute talks with Government and the banks, 200 year old Carillion Construction entered voluntary liquidation with immediate effect.

Carillion is the UK’s second biggest construction company, which employs 20,000 people in this country, and over 43,000 people around the world. The company is also heavily involved in the running and construction of some of the country’s biggest infrastructure projects and public services, including the building of HS2, providing school meals, maintenance of UK prisons and some of the largest building projects ongoing right now.

All of that, including the fate of those tens of thousands of jobs, is now up in the air as this mess is attempted to be unravelled by PwC and the Government.

Make no mistake, this is a very big deal. But perhaps the very biggest consequences are going to come in the following weeks, as the supply chain which relied on Carillion now faces a future without that guaranteed income.

More than just Carillion

Carillion employs 20,000 people in this country. That’s a large figure. And although Government and other major contractors may be able to pick up most of the projects and carry on with them, hopefully securing those jobs in one form or another, there will inevitably be job losses at the company.

However, much has been made around the supply chain around the company. Consider that the company had over 450 Government contracts on it’s books. Carillion carried out a lot of it’s work via sub-contractors, as most major construction companies do. They also had contracts with a large number of suppliers across many sectors. It’s not clear if the the glazing industry has been exposed to Carillion or to the sub-contractors they use, although that detail may come out in the weeks to come.

It’s the trickle down effect however that could be the most destructive. There are already predictions that hundreds of companies that supplied materials and labour to Carillion could now go bust themselves as they see their guaranteed future income disappear in the blink of an eye. That income is unlikely to be replaced, leaving the companies that supplied Carillion scrambling to win new business to replace that which they have now lost.

We should also consider the local geographical impacts. I was listening to 5Live in the car this morning and they were reporting from what was a live Carillion construction site in Liverpool. Someone from the Greggs bakery close by said that usually at that time in the morning there would be lines out of the door where workers would be waiting to buy their breakfasts. Today, nothing. Absolutely dead. They, and other local establishments that rely on workers spending their money in their shops are going to suffer badly in the coming weeks.

This is the trickle down effect many are now worried about. When a company this big suddenly ends, the support to other industries it usually gives suffers badly. There are now fears for those other companies. We could see thousands more jobs lost as a result.

As for any glazing industry exposure to Carillion, nothing has shown up yet. Share prices of companies such as Epwin and the major glass makers didn’t move much on the news today, an indication that they may have little to no known exposure to the trouble. That being said, with 450+ Government contracts and plenty of buildings under construction, it would be hard to imagine that some glazing companies at some point in the supply chain are going to lose business. Any building that is either in the midst of being built or is due to be built but is now on hold won’t be having windows ordered for them. As the weeks roll on and the full impacts begin to be know then I think we’re going to hear about a number of glazing industry companies losing out because of Carillion’s liquidation.

Glazing industry similarities

As you would expect, stories as to how Carillion operated as a company have started to surface as the dust begins to settle on this mess. Claims of 120 day terms to pay suppliers. Stories about invoices not being paid in full, not even close in some cases. Layer after layer of management and sub-contract work. The more that we begin to know about the business, the clearer it becomes that how the business was run was wrong, and it has some terrible similarities with the glazing industry.

One of the biggest similarities is the length of time it takes to pay suppliers further up the chain. In the case of Carillion, it is reported they would take up to 120 days to pay their suppliers. That’s a third of a year. That is way, way too long, and I am amazed that terms this long are even allowed. You imagine you’re a supplier to Carillion. Slow to be paid, disputes on invoice amounts. It only takes a couple of contracts to go wrong or to lose money on and you’ll be closing your doors in a matter of weeks. This is even more likely now the company has gone bust completely.

The glazing industry isn’t much different. I have heard on numerous occasions of suppliers in our industry not being paid by their customers for at least 90 days. That is three months and that is still far too long. 90 days leaves plenty of time for things to go wrong for other contracts and leave that supplier seriously short of cash to operate as a business. Often, when a big company goes bust in the glazing world, it can shut the doors of others as well as that trickle down effect hurts those around them.

Naturally, there are now calls to look at other major contractors that are carrying out public sector projects. If Carillion can find themselves in such a mess, could others be in trouble too? But there are also calls from many across the whole of construction and all it’s sub-sectors to address the way it operates as an industry and how things like payment terms and supplier agreements are carried out. Everyone knows that the way our industry, and the wider construction, operates is clunky, totally dysfunctional and it’s the SMEs that are it’s worst victims.

If we’re looking for a silver lining out of this, I would hope that this event will bring renewed attention to how contracts are awarded, how many different industries operate and at the very least a tightening of payment rules so that the good guys don’t become victims due to the biggest companies playing the system.

Watch this space on this one.