Fears have been voiced that the sinking of UK giant Carillion yesterday could drag many other smaller companies down with it as they face liquidity crises over unpaid invoices.
The UK government has said public sector contracts would be honoured, but private sector contracts are expected to be wound up tomorrow, with companies owed funds to be treated as creditors of Carillion.
Shares in geotechnical engineer Van Elle fell today after it revealed it was owed £1.6m from Carillion for rail improvement and maintenance work, and was counting on Carillion contracts for £2.5m in revenue this year.
The company said failure to recover any money owed will create a negative financial effect.
Yesterday plant and tool hirer Speedy said it was owed £2m from a total revenue of £12m with Carillion in the last 12 months.
As many as 30,000 UK businesses were owed in the region of £1bn in unpaid invoices, putting thousands of jobs and pensions at risk, newspaper The Daily Telegraph reported today.
Trade associations said Carillion’s collapse could have a "catastrophic" effect on smaller companies that worked for the firm.
The Building Engineering Services Association (BESA) and the Electrical Contractors’ Association (ECA) said there was "growing alarm that much of this money will be lost leaving many more firms at risk of financial collapse", reports Construction Manager.
"Carillion’s move into liquidation places their huge supply chain at risk of losing millions of pounds, which will threaten companies and jobs," said ECA director Paul Reeve. "While this is a clear and present disaster for construction and wider maintenance, the question will ultimately follow, why did Carillion appear so attractive to clients even as they moved towards collapse?"
Another company, landscaping and horticultural services company Flora-tec, is owed almost £1m by Carillion for work carried out in November and December at schools, hospitals, prisons and courts.
"We’ve got a profitable business but we can’t trade out of a black hole of £1m," its managing director Andy Bradley told newspaper The Guardian. Adding that he felt "duped and betrayed" by the government, which handed Carillion new contracts despite the company issuing two profit warnings last summer.
Image courtesy of Carillion
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This catastrophic collapse will at last highlight the appalling payment culture which exists within the construction industry. Large companies monopolise the top level of the industry and force the smaller companies which rely on the sub contract and supply chain for their business, into longer and longer payment terms. Even then leaving shortfalls in retained and short payments. I can easily see that these headlines are not alarmist, the ripples will be felt for months even years to come. It is time that credit terms are moved into statute.
So much for the Latham Report…what a total waste of money that was. Mind you the Government at all levels must shoulder some of the blame, onerous and obdurate tendering procedures meant to just drive prices down in a futile bid to save money on a national scale.. Any Contractor will tell you there’s little or no profit in Local, Regional or Central Government schemes these days. Carillion are no different to the UK Government in many respects in fact Government have been trading at a loss since the end of the first war…. We all live on credit and that’s the way it is. More should have been done to aid Carillion to stay afloat and continue to trade because 9/10ths of this is still under water. Even with no direct financial input this is going to cost the British Tax payer million if not billions and the financial institutions and Banks that underwrote Carillion’s sureties the same… Its just one big money go round.
Like the Banks ‘too big to fail’ mentality which of course they did, I suspect many suppliers thought
‘well Carillion work for the Government can’t get much more secure than that, stick with them we will get paid. The problem for suppliers up and down the supply chain is ‘when to pull out and loose your money or stick with it and hope to get your money back that’s the gamble.’ As events unfold it’s likely that the quoted 30,000 or so small business affected could be ten times as many when you take into account the ‘food chain of suppliers’ for example each supplier owed money by Carillion will have it’s own supply chain of labour and materials, and those suppliers at the bottom of the chain may just be small labour only firms with 5-10
men for example. This is going to be really messy and in my opinion one immediate affect will be substantially lower tax revenue income from the construction sector due to be paid to the government end of January as creditors up and down the supply chain struggle with liquidity.