What Does Carillion’s Collapse Mean?


What Does Carillion’s Collapse Mean?

The ever burgeoning construction job market took a major hit with the announcement of the construction giant Carillion’s liquidation. Carillion, the second largest construction firm in the UK, also provides public services, facilities management, and maintenance through contracts with small private companies. They are, in fact, the second largest supplier of ongoing maintenance to Network Rail. It’s estimated that Carillion accrued a hefty 1.5 billion pounds of debt in the form of unpaid invoices to subcontractors that carry out this work. Now, the company's 48,500 employees, 19,500 of them in the UK, could stand to lose their jobs, and the true figure is likely to be higher when the many contractors and freelancers the firm itself employed are included.


Faced with a surmountable debt, Carillion turned to its lenders and the government to begin discussions on salvaging the company. No deal, however, could be reached. The liquidation forced the hand of the government, whom had a number of service contracts with Carillion, to ensure that all public services resume as normal for the time being. At the time of collapse, Carillion was working on some 450 British government projects.


There can be no clear root cause to the inevitable collapse. Delayed payment on contracts in the Middle East, stretching the company's resources too thin, too many unfavorable risks. Any one of these or countless other issues could have lead the company to its fall. Many question the government’s role in the proceedings. This collapse was far from the first sign of financial instability. Why then, would the government continue to award major contracts to Carillion?


The immediate future is far from the only looming trouble. Carillion’s collapse will inevitably lead to a fall in pension savings for employees, who will now receive their pension savings from the government supported Pension Protection Fund (PPF). It is speculated that persons not drawing their pension currently could conceivably see a fall in up to 10% of their retirement income. There is some concern, however, that the PPF isn’t a long-term solution with other companies facing similar pension deficits, relying on it.


It remains to be seen how Carillion’s collapse will further affect not only the lives of their employees, but the hundreds of subcontractors and facilities that received their maintenance and management services.