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Carillion collapse in detail

Carillion collapse last January was one of one of the biggest shocks in Britain鈥檚 corporate history. Approximately 20,000 job positions were in danger not only in the UK but in Ireland, as well. On top of that, thousands of people in Carillion鈥檚 supply chain were also put at risk.
Carillion was responsible for a vast number of public services, such as the construction of two modern hospitals, large-scale rail and road projects, the cleaning of health and prison facilities, and even school meals. The completion of all these services came under serious threat, once Carillion entered into compulsory liquidation.
A few days ago, MPs released their . The report was put together by two committees, selected by the British Parliament, and it spread the responsibility among the directors of Carillion, its auditors, the government and the regulators.
The MPs’ report was completed in just four months and it was extremely critical against everyone involved in Carillion鈥檚 case. The harshest words were addressed to the company鈥檚 directors for their overly optimistic and careless management, while Carillion鈥檚 auditors were described as an overpaid 鈥榗osy club鈥�. Lastly, the practices of the government and the other regulators were seen as highly ineffective.
In a nutshell, here are the main findings of the MPs’ report into Carillion collapse:

Directors

Carillion鈥檚 board appears to attract most of the severe criticism as, according to the report, its members are accused of focusing on increasing their profits and executive bonuses instead of putting their attention on collective needs such as the pension scheme which 鈥榳as treated with contempt鈥�.
Based on these observations, the MPs’ report encourages the British Insolvency Service to examine whether Carillion directors violated their duties as they are dictated by the Companies Act. In the meantime, the Insolvency Service works still actively in the mission of saving jobs related to the company鈥檚 collapse.

Read also: UK could save聽拢15 billion by lifting construction productivity

If this suggestion gets accepted, the directors are in serious danger of being disqualified from (company) directorship. There are three directors who are singled out by the report.
More analytically, it鈥檚 Richard Adam, Chief Financial Officer (2006-2017), who has a 30-year leading experience in companies such as Associated British Ports. MPs’ report describes Adam as 鈥榯he architect of Carillion鈥檚 aggressive accounting policies鈥�.
Second in the list is Richard Howson, Chief Executive (2012-2017) who, according to the report, was a 鈥榝igurehead for the business鈥� and is characterised as 鈥榤isguidedly self-assured鈥�.
Lastly, Philip Green, chairman of Carillion, who among other was a corporate responsibility advisor for David Cameron. The report refers to Philip Green as ‘leader of the board he was both responsible and culpable鈥�.

Auditors: 鈥楾he Big Four鈥�

Carillion auditors (KPMG, Deloitte, EY, and PwC) also receive harsh criticism by the MP鈥檚 report. As a matter of fact, the report strongly suggests that the Competition and Markets Authority should take action and examine whether the quartet should be dispersed. As reported by the MP committees, the Big Four had profits of in the course of the last ten years thanks to Carillion.
Furthermore, the report underlines that the State has 鈥榥o confidence in their regulators鈥�. As far as the auditors are concerned, they deny the accusations described above.

Regulators

The Pension Regulator and the Financial Reporting Council who played the role of the regulator in Carillion鈥檚 case were described as 鈥榗hronically passive鈥� and unable to make good use of their regulatory powers.
Regarding the FRC (), the MPs’ report notices that they were unable to detect and warn the company about its problematic situation and practices before it鈥檚 too late. To the contrary, as the report underlines, they were very keen to place the blame on Carillion once the disaster had burst.

Concerning TPR (), despite its many 鈥榚mpty threats鈥� to Carillion during the years in order to improve pension contributions, it didn鈥檛 manage to actively put any of these warnings into proper action. In general, the MP鈥檚 report highlighted that TPR failed to fulfill any of its goals in terms of improving the company鈥檚 pension scheme.
All in all, both regulators faced the heavy disapproval of the MP committees which underlined the need for a groundbreaking cultural shift.

Government 聽聽

Last but not least, the UK government. According to the MPs’ report, it has played its own role in Carillion鈥檚 collapse.
On the one hand, the report makes clear that the blame is on Carillion鈥檚 directors and that the government made a solid effort to find a solution to this problematic situation. On the other hand, MPs notice that the government should have taken braver decisions in the past in order to limit corporate carelessness.
In addition, it appears that the push of the government for cost minimisation led to questionable decisions in terms of awarding contracts to Carillion, even though the company was already heading to collapse.
This approach of heavy outsourcing in combination with ineffective initiatives (eg. Prompt Payment Code), and the insufficient supervision of the government contractors proved to be decisive for Carillion鈥檚 disaster.

The next day 聽

The collapse of the second biggest UK contractor brought on the surface some serious inefficiencies and problems that the building sector is currently battling against. In any case, though, many things are expected to change from now on based also on the report鈥檚 substantial feedback.
To be more specific, the MPs committees strongly suggest that auditors shouldn鈥檛 be so powerful and that the 鈥楤ig Four鈥� should be referred to the Competition and Markets Authority with ultimate goal its dispersal.
A closer examination of the responsibility of Carillion鈥檚 directors under the Companies Act is another strong recommendation on behalf of the MP鈥檚 committees.
A significant paradigm shift is required by the UK government, as well.

鈥淕overnment urgently needs to come to parliament with radical reforms to our creaking system of corporate accountability,鈥�, underlines Frank Field, chairman of the work and pension committee.

As suggested in the report, the British government should put an end to outsourcing and bring under its supervision the ongoing contracts. In that manner, productivity will be the priority instead of profit.

Digital tools could hold the answer

Not long ago, Mark Farmer underlined the need for the UK building sector to become more digitised. In his very informative report 鈥楳odernise or Die鈥�, he analysed with great detail why construction should invest in digital tools before it鈥檚 too late.
Despite Carillion collapse, there is still time for the industry to change things around and enter a more accountable and productive era. For this to happen, though, there is a strong need for the sector to take better care of its data and establish digital tools as the backbone of the construction process.

鈥楾he use of digital tools is paramount to the future of the construction industry but the most important factor is the stronger ability to collaborate. 螜t鈥檚 vitally important for existing technology organisations to coordinate and work together with the new technology start-ups as its them who are seen as the disrupters due to the wider focus on gathering and sharing digital data across the teams鈥�, underlined Jason Ruddle UK construction expert and MD at GenieBelt.

And he concluded:

鈥榃e all want to see improved productivity and improved costs, but this will only come from collaboration between the different disciplines within the construction process. Whether it鈥檚 through BIM, Government legislation or technology breakthroughs, the construction industry must realise that unless we adopt new processes and agree to data sharing, the industry will be forever seen as being out of touch with driving demands for change’.

TL;DR

underlined the need for a groundbreaking cultural shift in construction. Mismanagement, heavy outsourcing and lack of brave decisions on behalf of the involved stakeholders (directors, government, auditors, regulators) are some of the key factors that led to the collapse of the second biggest UK contractor.

GenieBelt as part of the cultural shift

For the construction sector to achieve a significant change, it is indispensable to realise that a cultural shift needs to take place first. The industry needs to start thinking and working differently. Only then, we will be able to take the most out of the data and tools that we have at our disposal.

In GenieBelt, we are fully committed to delivering solid results which will allow this paradigm shift to happen. Data-driven collaboration between the numerous project stakeholders, effective decision-making and strong connection between the construction site and the office are some of the keys for a more digitised and productive building sector.
There is a lot of work ahead of us, but we are on a mission.聽Schedule a personalised demo and learn how we can help you!
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