Trouble at t'mill? Carillion issues?

[Classsix T]

Whilst I sympathise with those with affected pensions in this case, it has just occurred to me this could possibly affect my interests closer to home.

 

It's been some ten hours ago now, but did I hear right Carillon was the major cog in the Crossrail project?

Our (ostensibly) preserved loco was frequently sub hired to a loco supply outfit and worked the spoil trains.

 

If I assume all the signed contracts are air tight, our cash should come from the loco supply firm, regardless if they don't get paid either directly or indirectly by Carillon?

I suspect we as a loco owning Group are pretty far removed from Carillon in terms of contracting and subsequent of, but I wonder how far down the rungs affects whether we get paid! Purely for the old girl's retirement, natch.

 

C6T.

Edited January 16, 2018 by Classsix T

[black and decker boy]

Whilst I sympathise with those with affected pensions in this case, it has just occurred to me this could possibly affect my interests closer to home.

 

It's been some ten hours ago now, but did I hear right Carillon was the major cog in the Crossrail project?

Our (ostensibly) preserved loco was frequently sub hired to a loco supply outfit and worked the spoil trains.

 

If I assume all the signed contracts are air tight, our cash should come from the loco supply firm, regardless if they don't get paid either directly or indirectly by Carillon?

I suspect we as a loco owning Group are pretty far removed from Carillon in terms of contacting and subsequent of, but I wonder how far down the rungs affects whether we get paid! Purely for the old girl's retirement, natch.

 

C6T.

It depends how badly the ripples flow down the chain. If any link above you fails as a result of non payment by Carillion then your money stops coming down towards you.

 

My employer is in a sizeable 3 way JV for a major highways contract in Scotland. We have just taken a multi-£million hit as we now have to pick up Carillion loses as well as our own and pay to finish their portion of the works. The job itself won’t stop as we will be paying outstanding bills.

 

Ive heard today of Carillion suppliers down £1m and £0.4m. By all accounts, hire companies are collecting their kit en-masses so jobs that were only Carillion as principal contractor will stop by default, no matter what instructions are given to staff. They will be in some weird limbo but it won’t last long until the last rites are read and clients terminate the contracts and relet them.

Edited January 15, 2018 by black and decker boy

[TheSignalEngineer]

Was that Jarvis by any chance?

No. Someone who has been given lots of Government contracts since then and seems to have either a very charmed life or a fairy godmother.

[iands]

No. Someone who has been given lots of Government contracts since then and seems to have either a very charmed life or a fairy godmother.

B4BT?

 

Regards, Ian.

[TheSignalEngineer]

B4BT?

 

Regards, Ian.

??

 

The more I looked into it the conflicts of interest between the company concerned (not Carillion) and government get deeper and deeper. Nuff said before I get the site into trouble. Item closed.

[lmsforever]

The MOD work is being carried out badly our local RAF training station has windows falling out unable to be opened ,electrics failing,brickwork crumbling overall its falling to pieces and the staff are fed up with it all.Are shareholders culpable as they took the profits and now seem to be getting away with any responsibility also if the profit warnings had been acted on by the management perhaps the closure could have been delayed enough to spread the losses and rearrange finance.Perhaps I  have got it wrong but somewhere there are people responsible who can be made to explain what went wrong.

[Clearwater]

@LMSforever

Situation depends on who owns the facility and how they’ve contracted for maintenance. On a full pfi, the contractor takes the risk on maintaining the building to an agreed standard. In other situations, they may be contracted on a call off basis to be instructed by, eg mod, to go and fix that window. In the latter case, if the authority has no money, the contractor won’t do anything. In the former, the payment mech will deduct cash if the window is not fixed within a service level agreement time frame

 

David

[black and decker boy]

The MOD work is being carried out badly our local RAF training station has windows falling out unable to be opened ,electrics failing,brickwork crumbling overall its falling to pieces and the staff are fed up with it all.Are shareholders culpable as they took the profits and now seem to be getting away with any responsibility also if the profit warnings had been acted on by the management perhaps the closure could have been delayed enough to spread the losses and rearrange finance.Perhaps I have got it wrong but somewhere there are people responsible who can be made to explain what went wrong.

Shareholders are only liable for the value of their shares, ie they have now lost any investment made. They are not liable for any debts. That is Company law here for ‘limited’ companies.

 

As for management taking action after the profit warnings then yes, they did but the size and breadth of losses were simply too crippling. The bigger suppliers were also forcing Carillion to pay up front which will have impaired their cash flow even more. When construction runs on wafer thin profits and just in time cash flow, the impact of these issues is severe. I have been in similar situations with other big contractors that whilst profitable on paper, lived day to day with cash, unable to pay billls unless their own invoices were settled by clients. Despite promises, some public bodies can be pretty poor at paying in time and very tough / unreasonable about assessing valuations for payment and making random deductions.

 

I suspect the pension fund will have been big trigger this weekend, having to demand large payments as part of any deal with creditors. Past employers of mine have faced the same and it has been their pension fund that actually called time as the best option for them under the rules they gave to follow to protect the pension fund.

 

This will be complex to unravel given the size of Carillion but no doubt there will be a multitude of investigations. It won’t stop it happening again though.

Edited January 16, 2018 by black and decker boy

[Sheffield]

Although we can not, and should not, go back to the days before limited liability, it does seem to me to be time some change was made to company law to make senior managers and directors more personally responsible for the company they manage and direct. In all these major company failures the executives responsible seem to be able to walk away with their pots of gold, leaving others to suffer the losses. Example Towers and his chums at BL, and more recently Greedy Green at BHS. It does seem to be time that if a company such as Carillions goes down, those at the top who ran it go down with it. I am sure there would be much less risk taking and poor management as a consequence.

However I can not see MPs welcoming such a change, for obvious reasons.

[4630]

I think I’d be focussing attention a little bit more closely on the performance (or non-performance in this case) of the non-executive directors. Followed up by a good roasting of the company’s external auditors.

[Western Dave]

@LMSforever

Situation depends on who owns the facility and how they’ve contracted for maintenance. On a full pfi, the contractor takes the risk on maintaining the building to an agreed standard. In other situations, they may be contracted on a call off basis to be instructed by, eg mod, to go and fix that window. In the latter case, if the authority has no money, the contractor won’t do anything. In the former, the payment mech will deduct cash if the window is not fixed within a service level agreement time frame

 

David

Without knowing the SLA's (service level agreements) and the scope of contract you cannot put it at any one door (Carillion or otherwise) as I have said these contracts are a often a subcontract or a sub contract of a sub contract and if for example you take the MOD work there will also be a budget from the source company/organisation (MOD in this case) and that budget holder may not be authorising the work! I have no actual knowledge of this contract but I can tell you that several companies we deal with both directly and via contractors frequently have these hurdles to overcome. its what we sometimes call famine and feast one week nothing then all hell breaks loose which can be the result of a site inspection, an SLA audit a new boss arriving, an incident occurring (like last year when the BBC found some undesirable human waste in the Ice at Kentucky Fried Chicken) or simply there is money in the budget

[APOLLO]

The event is being described in some newspapers as a "British Enron" scandal.

 

Brit15

[Clearwater]

@westerndave

Fully agree. I’m as guilty as anyone on pontificating on complex contracts to which we’re not privy to the details. It does amuse me (and at the same time make me angry) to hear politicians/journalists suddenly become experts in these matters and spout complete gibberish!

 

David

[rockershovel]

Re #59 and #60 above, the legal constraints and penalties applied to directors are actually quite stringent and onerous. The problem lies, in the exact nature of those liabilities, and the lack of will to prosecute them. Hence the steady stream of legislation purporting to make such-and-such a case illegal, when perfectly good legislation already exists but is not used.

 

There is a common stage which failing businesses go through, in which the impending failure is recognised by senior management and often, other industry professionals, but not yet by the world at large: assets are siphoned off (where possible), cash flow is directed to immediate short-term problems regardless of its origin, bonuses and benefits are maximised. It’s fairly clear that Carillion’s major creditors recognised the developing problem, and imposed increasingly stringent conditions to protect their own positions, along with various brokerage houses who sought to make profits and/or mitigate their own losses by “shorting the market” - effectively, gambling that Carillions shares were likely to decline rapidly, quite soon.

 

It must have been apparent to those in a position to know, that Carillion could not long survive, at least without a major restructuring involving substantial defaulting on its debts. The banks often act at such times, to secure their OWN positions by securing their lending. This tends to lead to the banks being the actual instigators of the final collapse, because such arrangements further constrain the company when it can least afford it.

 

None of this is illegal, apart from the failure by the Board to recognise the impending collapse. Directors have a legal obligation to shareholders. Banks and suppliers have a legal obligation to THEIR shareholders. HMRC have priority status among creditors. What HAS changed, is firstly the proliferation of subcontracting and agency work (which erodes the historic position by which HMRC often became a crucial player in the last stages, because of directors liabilities in respect of employees tax and NI contributions), the lunatic complexity of the actual structures, and the willingness of HMG to pour public money into obvious failures for short-term political ends.

[Western Dave]

@westerndave

Fully agree. I’m as guilty as anyone on pontificating on complex contracts to which we’re not privy to the details. It does amuse me (and at the same time make me angry) to hear politicians/journalists suddenly become experts in these matters and spout complete gibberish!

 

David

There is always an "expert" in "I told you so" after the event and the bigger the event the more "experts" there are.........

[Western Dave]

Re #59 and #60 above, the legal constraints and penalties applied to directors are actually quite stringent and onerous. The problem lies, in the exact nature of those liabilities, and the lack of will to prosecute them. Hence the steady stream of legislation purporting to make such-and-such a case illegal, when perfectly good legislation already exists but is not used.

 

There is a common stage which failing businesses go through, in which the impending failure is recognised by senior management and often, other industry professionals, but not yet by the world at large: assets are siphoned off (where possible), cash flow is directed to immediate short-term problems regardless of its origin, bonuses and benefits are maximised. It’s fairly clear that Carillion’s major creditors recognised the developing problem, and imposed increasingly stringent conditions to protect their own positions, along with various brokerage houses who sought to make profits and/or mitigate their own losses by “shorting the market” - effectively, gambling that Carillions shares were likely to decline rapidly, quite soon.

 

It must have been apparent to those in a position to know, that Carillion could not long survive, at least without a major restructuring involving substantial defaulting on its debts. The banks often act at such times, to secure their OWN positions by securing their lending. This tends to lead to the banks being the actual instigators of the final collapse, because such arrangements further constrain the company when it can least afford it.

 

None of this is illegal, apart from the failure by the Board to recognise the impending collapse. Directors have a legal obligation to shareholders. Banks and suppliers have a legal obligation to THEIR shareholders. HMRC have priority status among creditors. What HAS changed, is firstly the proliferation of subcontracting and agency work (which erodes the historic position by which HMRC often became a crucial player in the last stages, because of directors liabilities in respect of employees tax and NI contributions), the lunatic complexity of the actual structures, and the willingness of HMG to pour public money into obvious failures for short-term political ends.

There is also a legal position where it is illegal for Directors & Officers of the company to trade insolvently, often a difficult position to prove. As in this case there could be a clear argument that since the directors met last week (and the penny only dropped then) that they believed that a solution could be found. It also has to be remembered that they issued a statement before Christmas advising that they were about to breech their banking covenants.

[rockershovel]

There is also a legal position where it is illegal for Directors & Officers of the company to trade insolvently, often a difficult position to prove. As in this case there could be a clear argument that since the directors met last week (and the penny only dropped then) that they believed that a solution could be found. It also has to be remembered that they issued a statement before Christmas advising that they were about to breech their banking covenants.

That’s quite correct. The problem is, to prove it in a legal sense when (1) you don’t have access to the full information and (2) you don’t share their predisposition to accept the validity of the company’s position.

 

I spent a number of years in the construction industry, as a contractor, and you learn far more than you could ever want to about such matters, in that environment.

 

There is a generally recognised stage at which external parties, particularly creditors, no longer have confidence in the business, although it is not demonstrably insolvent. Carillion appear to have been in that situation, for some time. The next stage is (as you say, “the penny drops” ) and the matter becomes so unmanageable that the Board no longer have the ability to conceal or delay the inevitable. This often takes the form of a key supplier ceasing deliveries, or the prospect of defaulting on a payment to HMRC (thereby generating legal sanctions, as happened with Rover Cars - the final trigger was the inability to run payroll, including PAYE and NI payments)

 

I’ve never believed that Boards were “deluded” or “incompetent” in such matters, as the press like to allege; rather that they usually opt to keep the ball in play for as long as possible out of a combination of denial, and lack of any options that don’t involve self-immolation. It’s a particular problem in the UK because we have long since lost any effective culture of success at senior management level.

[Mike Storey]

There is also a legal position where it is illegal for Directors & Officers of the company to trade insolvently, often a difficult position to prove. As in this case there could be a clear argument that since the directors met last week (and the penny only dropped then) that they believed that a solution could be found. It also has to be remembered that they issued a statement before Christmas advising that they were about to breech their banking covenants.

 

Also, I recall reading that the CEO resigned last summer, reportedly because of the state the company was in, but is still getting his salary and benefits?

[rockershovel]

Also, I recall reading that the CEO resigned last summer, reportedly because of the state the company was in, but is still getting his salary and benefits?

Indeed. I don’t believe for a moment that such issues spring forth fully formed and armoured, like Athena from the forehead of Zeus.

[Dunsignalling]

Whatever the ins and outs of how we got here, something much more serious will kick in when the government ceases to "support" Carillion's sub-contractors in 48 hours time.

 

Many haven't been paid by Carillion for some time and, unless they are taken under the wing of another main contractor, or taken "in-house" pretty quickly, they may pull out altogether and lay their workers off, with unpredictable consequences for many of the activities that were in Carillion's remit.

 

Where Carillion were joint main contractors, I suspect this will get resolved, their partners will need continuity just as the sub-contractors do.

 

Where Carillion were in sole control, however, things may get very awkward very quickly.

 

John

Edited January 16, 2018 by Dunsignalling

[Western Dave]

That’s quite correct. The problem is, to prove it in a legal sense when (1) you don’t have access to the full information and (2) you don’t share their predisposition to accept the validity of the company’s position.

 

I spent a number of years in the construction industry, as a contractor, and you learn far more than you could ever want to about such matters, in that environment.

 

There is a generally recognised stage at which external parties, particularly creditors, no longer have confidence in the business, although it is not demonstrably insolvent. Carillion appear to have been in that situation, for some time. The next stage is (as you say, “the penny drops” ) and the matter becomes so unmanageable that the Board no longer have the ability to conceal or delay the inevitable. This often takes the form of a key supplier ceasing deliveries, or the prospect of defaulting on a payment to HMRC (thereby generating legal sanctions, as happened with Rover Cars - the final trigger was the inability to run payroll, including PAYE and NI payments)

 

I’ve never believed that Boards were “deluded” or “incompetent” in such matters, as the press like to allege; rather that they usually opt to keep the ball in play for as long as possible out of a combination of denial, and lack of any options that don’t involve self-immolation. It’s a particular problem in the UK because we have long since lost any effective culture of success at senior management level.

I fully agree and certainly in my experience in general (outside railways) in the business world there is a new order of people coming into top jobs and few have the ability let alone the experience. Sadly what I am seeing and hearing increasingly is companies planning on today and tomorrow and not worrying about next week because they either wont be around or the world will have moved on and left them behind and they wont be around anyway.

[The Stationmaster]

I fully agree and certainly in my experience in general (outside railways) in the business world there is a new order of people coming into top jobs and few have the ability let alone the experience. Sadly what I am seeing and hearing increasingly is companies planning on today and tomorrow and not worrying about next week because they either wont be around or the world will have moved on and left them behind and they wont be around anyway.

 

Some of what I have come across within the railway (looking in from the outside that is) indicates the same is going on there - GWML non-electrification being a near textbook example of senior management who don't seem to have known (or cared about?) what was or wasn't happening and therefore failing to take a grip and get things sorted.  I suspect. similar sort of malaise might well be occurring with some aspects of the so-called 'digital railway'.

[cary hill]

Good to see (not) that some parasitic hedge funds have "made" circa £200M. by"betting" that the share price would collapse over the past few months.

[Mike Storey]

I guess a good indicator, for railway work anyway, will be how quickly, or otherwise, the Shotts electrification gets back on track.

[TheSignalEngineer]

Some of what I have come across within the railway (looking in from the outside that is) indicates the same is going on there - GWML non-electrification being a near textbook example of senior management who don't seem to have known (or cared about?) what was or wasn't happening and therefore failing to take a grip and get things sorted.  I suspect. similar sort of malaise might well be occurring with some aspects of the so-called 'digital railway'.

Post-privatisation up to and beyond the collapse of Railtrack many projects were absolute chaos. The original West Coast Route Modernisation project had teams already  contracted and working on designing OLE when the track layout hadn't been agreed and under the assumption that there would be Moving Block with no lineside signalling These are two fundamental 'Must Know' items if you are going to get things like OLE structures, section switching, neutral sections etc correct without redesign later. In other bits of the job mega-million alterations were planned to get a few seconds off the running time between locations. One I was asked to assess saved 15 seconds and would cost £10m. I suggested an alternative which would save 12 seconds and cost £2m without taking into account the fact that it needed 25% of the amount of service disruption to actually install it.