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The collapse of Carillion & the inevitable blame game

Blog from Mark Whittaker, Business Development Manager for Integral UK Limited and Chair of BIFM, North Region, on the demise of outsourcing and construction firm, Carillion

The liquidation of Carillion this week is terrible news on many, many levels. The stress, upset and uncertainty caused to the 19,500+ employees who are facing redundancy and wondering where and when their next pay packet is coming in from, companies, particularly SMEs, owed money and a disappearing order book and possible bankruptcy and the reputational damage to both the construction and facilities management industries as the press, politicians and public ask, “how could this have been allowed to happen?”

The inevitable ‘blame game’ started soon after the news of the liquidation was announced on Monday. It followed predictable lines:

The Carillion Board: portrayed as awarding themselves handsome bonuses, despite apparent mounting pension deficits and dramatically worsening balance sheets. Also questions as to how aware they were of the problems Carillion were in and how proactive they were in resolving them.

The Company:  stinging criticism all week from current and ex-members of their supply chain, unhappy about their payment terms and the time, cost and frustration expended in chasing money they claimed they had been owed and was long overdue for payment.

The Government: politicians of Labour, Conservatives and Coalition colours who have all pursued the strategy of outsourcing public sector works to private sector companies and making massive profits/bonuses on the back of it, have been criticised. Yesterday there was call for this to change by Jeremy Corbyn, and for such services to be delivered in the future by “public employees with a public service ethos.” There was also stinging criticism of why ministers, such as Chris Grayling, were awarding Government contracts to a company which appeared to be failing and that contracts had been historically awarded based solely on costs, which were delivering tight or non-existent margins and were thus unsustainable.

The Industry: Many facilities management commentators had seen this day coming. They had observed large public sector contracts apparently only being awarded to the “big few”, tendered at unrealistic margins and their supply chain were being treated adversarial and fundamentally unfairly.

What has happened has cast the facilities management sector into the media spotlight (many more people will now have an awareness of the outsourced service/support industries) but unfortunately for the wrong reasons.

After the dust begins to settle there are two main areas I hope the facilities management industry will take forward as learning:

Procurement: Despite the drive for new business turnover growth, no longer can contracts be tendered at unrealistic margins by main contractors, to win the turnover, in a “race to the bottom.” Simply paying lip service to the concept of price not being the only decision driver has to stop (on a lot of contracts it still remains the case) but contracts be tendered on fair and sustainable margins and a focus on actual service delivery excellence and value for money.

Supply Chain: having worked in the industry for a number of years, I have consistently heard the unhappiness of SMEs, who have been subcontracting for the larger main contractors, with their payment terms, which they have to “like or lump.” The airwaves this week have been filled with company directors angry with the way they have been treated and the constant need to chase aged debt and the apparent withholding of monies, without proper justification. I would like to see major companies within the industry, SMEs representatives and the main trade organisations such as BIFM, to develop, agree and introduce a new Code of Conduct for Supply Chain Management and in particular the payment processes.
In the meantime, my thoughts go out to the many thousand Carillion employees, some of whom I have known for years, who worked hard to build the business with loyalty and passion and have seen it coming crashing down this week.

The views expressed in this blog are entirely those of the author and not of his employer or any organisation he represents.

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