Following the collapse of construction giant, Carillion, a recent snap poll of its engineering sub-contractors shows that many companies are set to face huge financial losses. That’s according to new data obtained by the Building Engineering Services Association (BESA) and the electrotechnical and engineering services trade body ECA.
The engineering services sector is the largest part of the construction industry by value. Carillion owes around £75 million to around 80 engineering services firms, who provide vital services such as electrical, plumbing, gas, fire and security, and heating and ventilation, although BESA says the overall losses are likely to be far higher, given there are thousands of businesses operating in the industry.
The ECA and BESA survey shows that contractors of all sizes have been affected by Carillion’s demise:
- The total value of ongoing contracts with Carillion is worth £47.2 million, which are now at risk.
- Micro businesses (less than 10 employees) are owed on average £98,000. One of these SMEs is owed over £250,000.
- Small firms (10-49 employees) are owed £141,000 on average. One of these contractors is owed £800,000 by Carillion.
- Medium-sized businesses (50 – 249 employees) are owed on average £236,000. One of these firms is owed almost £1.4 million.
- Large businesses (250 employees +) are owed on average £15.6 million. This figure includes Balfour Beatty’s widely reported £45 million loss from joint ventures with Carillion*
On Wednesday, BESA and ECA met with liquidator PwC and the Government. PwC said any private sector work undertaken by Carillion suppliers before 15 January this year would be unpaid. Instead, it would be treated as ‘unsecured debt’, and placed at the back of the queue behind other creditors.
BESA President Tim Hopkinson, said: “We knew the fall-out from this seismic episode would be extremely serious, but these figures give us a clearer picture of just how hard our sector is going to hit in terms of the thousands of pounds of unsecured debt that will be lost by ordinary hard working small businesses, jeopardising their future and the future of their staff.”
ECA Director of Business Paul Reeve, added: “These findings underline the need for concerted action from the Government and banks to protect and support SMEs in the construction and services sector. The Government should also introduce legal measures to ensure SMEs are not continually exposed to upstream insolvency.”
Both ECA and BESA have long called for reform to unfair payment practices within construction. Carillion was widely known to take over four months to pay suppliers, despite 30 day payment being industry good practice. To tackle this slow payment, the two trade bodies are calling on the Government to pay small and medium-sized businesses directly, using ‘project bank accounts’.
BESA and ECA are also supporting a Bill tabled by Peter Aldous MP, which is currently going through Parliament. The Bill will prevent clients and main contractors, such as Carillion, from using their own accounts to store money held back from suppliers in case of defects – ring-fenced, independent accounts would be used instead.
* Please note: Balfour Beatty did not reply directly to the survey and these joint ventures are understood to be separate entities from the main Balfour Beatty business.