Trouble at t'mill? Carillion issues?

[ian]

If the banks had failed en-masse many people would have been faced with repaying their outstanding mortgages on demand, businesses paying off loans on demand, non-cash transactions would have dried up and the government would have been faced with a huge call on its resources via the deposit protection scheme, unemployed people from companies that had folded, homless people from house repossesions, people with no money to buy food, no fodd to be bought in the shops and no shops in which to buy them...

[black and decker boy]

There is a precedent for bailing out failing companies. The politicians were quick to bail out the banks when they were failing, but not, it seems, non-banking companies.

Banks are a bit more fundamental to the economy and public wellbeing.

 

Carillion are no different to Monarch Airlines, some short term disruption and some financial losses for customers& suppliers but ultimately there are other companies out there that will take over the contracts, assets and employees should Carillion fail.

 

There are several major companies who bid for and lost out on HS2 who would take their place in the consortium or the other partners could carry on alone. There are other FM companies that could take over NHS and MOD contracts. In the short term, Carillion will continue to trade in administration and contracts can be ‘sold on’ or clients can use the time to find another contractor to step in or could contract employees and suppliers direct.

 

It’s certainly not going to shut the UK down which the loss of the major banks could have done.

[Western Dave]

If the banks had failed en-masse many people would have been faced with repaying their outstanding mortgages on demand, businesses paying off loans on demand, non-cash transactions would have dried up and the government would have been faced with a huge call on its resources via the deposit protection scheme, unemployed people from companies that had folded, homless people from house repossesions, people with no money to buy food, no fodd to be bought in the shops and no shops in which to buy them...

As a business owner who deals with Carillion and many others of the same ilk there Are many issues which include poor/lack of management, poor staff and a demand to win contracts at unsustainable margins and look to put some margin back in later on via extras and cuts.

 

There seems a constant rational nowadays for all sectors of life to drive the price to the bottom just to say you won the contract!

The old business saying is turnover is vanity and profit is sanity!

 

Sadly this coupled with rising wage costs, rising pension costs, rising H & S costs and not forgetting management with a lack of knowledge and fingers on the pulse results in “trading problems”

[Oldddudders]

I fear that, as usual, the true figure for job losses if Carillion stops dead is considerably higher than the already-grim 20k that seems to be generally quoted. There will be a zillion small businesses who had happily won sub-contracts with what seemed like a blue-chip company, and now face ruin through non-payment. One- or two-men firms some of them, doing a small but decent job for which they may never see a return. Hard not to feel their pain.

[Mike Storey]

Banks are a bit more fundamental to the economy and public wellbeing.

 

Carillion are no different to Monarch Airlines, some short term disruption and some financial losses for customers& suppliers but ultimately there are other companies out there that will take over the contracts, assets and employees should Carillion fail.

 

There are several major companies who bid for and lost out on HS2 who would take their place in the consortium or the other partners could carry on alone. There are other FM companies that could take over NHS and MOD contracts. In the short term, Carillion will continue to trade in administration and contracts can be ‘sold on’ or clients can use the time to find another contractor to step in or could contract employees and suppliers direct.

 

It’s certainly not going to shut the UK down which the loss of the major banks could have done.

 

You say there are plenty of companies out there, who could take over, but one of the key problems identified in the semi-official comments so far, is that there are very few left of the size of Carillion in the UK, that could take on the size, type and risk that they do. True there are various non-UK companies trying to enter the UK market, and it is true there is probably little risk to HS2. But a smaller pool of bidders for any works or services, is bound to drive up prices and transfer more risk to clients, especially the taxpayer. It is true that margins are probably still too low, but there is a danger that the pendulum will swing far the other way. For evidence, look at the dearth of bidders these days for big rail contracts, and the consequent move to cost-plus arrangements.

[Western Dave]

I fear that, as usual, the true figure for job losses if Carillion stops dead is considerably higher than the already-grim 20k that seems to be generally quoted. There will be a zillion small businesses who had happily won sub-contracts with what seemed like a blue-chip company, and now face ruin through non-payment. One- or two-men firms some of them, doing a small but decent job for which they may never see a return. Hard not to feel their pain.

Whilst I do not disagree with anything you say I would add that firstly the work continues so although people may lose their job at Carillion or elsewhere ultimately they will either transfer to another company or start another business.

 

It’s also worth adding that as a business whatever the size you should trade within your means. As I said in an earlier post we trade with Carillion and many others (on the FM side) and it was been on a payment before supply now for a couple of years due to their credit rating . Again it makes no matter what size business you are no work is worth doing unless it’s profitable and if the company your trading with pays late or has a bad credit rating why would you deal with them? Ultimately if you do and they crash it’s not just on them you have to take responsibility.

[jjb1970]

If Carillion go under other contractors will step in to pick up the work and I'd expect most people to find jobs with those companies. And some of their operations will be attractive to buyers. Sub-contractors and suppliers will have evaluated the risk of working with Carillion and reflected it in their terms. Small businesses aren't totally clueless, and if they are either too desperate not to work for them or totally clueless then it won't be Carillion folding that is the source of their demise.

The losers, other than shareholders (who accepted the risk alongside the potential profit when they bought shares) will probably be the corporate employee's in offices as often a buyer has no need for many of those staff. However my experience is that many people seem to think office staff do not deserve any sympathy.

I hope Carillion survive, I also think things should run their course.

[lmsforever]

The  calls for government to bail them out is a very risky approach RBS has not been a success but I hope that a Chinese company moves in as they have taken over to much of the UK taking decisions of importance out of the UK which really puts jobs at risk.

[Clearwater]

Any analysis of what contracts may be taken over presupposes that those individual contracts are themselves actually profitable. Every contractor I have ever worked with has assured me that they have a 10% profit margin. Observation of their group outturn profits suggests they rarely achieve these levels.

I expect they’ll lose profitable contracts as who would want them as a counter party? In most contractual situations, the counteparty has the right to be able to force a change of parent company on parent company default, eg insolvency. In that case, a rump carillion where the true losses reside will be the end result

 

If I were in the services business, I’d be cherry picking and approaching Carillion’d counter parties offering my company’s services.

 

David

[RANGERS]

Much has been said of the risk that if Carillion does go under, the reduced competition will inevitably mean an increase in cost to complete public contracts. Regardless of how many bidders there ultimately are for these, the increased cost is inevitable. Lets face it, Carillion are in bother because the weren't making enough money to survive, the work they were doing, they were doing too cheaply so with or without Carillion, there will be an increase to a level which is more sustainable if this work is to be completed.

[Western Dave]

Any analysis of what contracts may be taken over presupposes that those individual contracts are themselves actually profitable. Every contractor I have ever worked with has assured me that they have a 10% profit margin. Observation of their group outturn profits suggests they rarely achieve these levels.

I expect they’ll lose profitable contracts as who would want them as a counter party? In most contractual situations, the counteparty has the right to be able to force a change of parent company on parent company default, eg insolvency. In that case, a rump carillion where the true losses reside will be the end result

If I were in the services business, I’d be cherry picking and approaching Carillion’d counter parties offering my company’s services.

David

Many people quote margin figures all of which should be taken with a pinch os salt, especially in the type of contracts companies like Carillion have. There is a massive difference between gross margin and net margin for starters, and when your bidding for contracts several years before you might actually win them the variables are huge, wages, pensions, energy costs, material costs are normally based on the best educated history and what you can see of into the future! And dare I also add exchange rates into the mix. Most contacts have some wriggling room clauses but of late businesses in general are suffering from a perfect storm.

[Clearwater]

Much has been said of the risk that if Carillion does go under, the reduced competition will inevitably mean an increase in cost to complete public contracts. Regardless of how many bidders there ultimately are for these, the increased cost is inevitable. Lets face it, Carillion are in bother because the weren't making enough money to survive, the work they were doing, they were doing too cheaply so with or without Carillion, there will be an increase to a level which is more sustainable if this work is to be completed.

 

  

Many people quote margin figures all of which should be taken with a pinch os salt, especially in the type of contracts companies like Carillion have. There is a massive difference between gross margin and net margin for starters, and when your bidding for contracts several years before you might actually win them the variables are huge, wages, pensions, energy costs, material costs are normally based on the best educated history and what you can see of into the future! And dare I also add exchange rates into the mix. Most contacts have some wriggling room clauses but of late businesses in general are suffering from a perfect storm.

Unless as Western Dave partially implies, the risk inherent in contracts becomes too great to price, or caveat, then I doubt there will not be a queue of bidders wanting to bid for long-term public sector contracts. As this saga illustrates, who else would you want as a counter party, from a credit risk perspective, but UK Government? Whether the loss of Carillion translates into higher prices I think is more a function of whether it is down to mispricing these contracts or other contracts that have caused Carillion to haemorrhage cash.

 

I've been through a number of public procurements from several perspectives (adviser to Gov, adviser to bidder, bidder and funder), whilst the issues Dave identifies are present, generally, you can get yourself comfortable with the assumptions made and, at worst, look to the position where the contract is repriced after n years. Very few people sign contracts with more than five years without some such provision. As hopefully clear in my original post, I'm sceptical as to how risk has actually been priced in some of these contracts. Personally, I don't think labour/pensions are a massive risk - they're more predictable and there's long term evidence to support. They're also readily benchmarkable capping the risk to a shorter benchmarking period in any contract. Energy prices, particularly on a long-term deal, I'd expect to see the risk handled on a split, pass through perspective. I.e. The bidder, if they're also responsible for the building fabric, may take some risk around energy usage (subject to parameters of how the occupier uses the building) to incentivise them to ensure that any energy efficiency savings are actually delivered but it's more challenging to take volatility on energy price risk as you've no ability to manage it (save for adding your own micro generation which is increasingly common.)

 

That said, I fully agree that if you're bidding wafer thin margins, then it doesn't take much to blow the house down.

[peanuts]

http://www.thisismoney.co.uk/money/markets/article-4873710/Carillion-protected-bosses-4m-bonuses-crisis.html this may put the cat amongst some pigeons in regard to pensions again it seems they will privatise the profits and nationalise the debts or at least attempt to 

[daveyb]

(and pretty good quality on delivery, if my experience of working with them on several major rail projects is any guide)

 

My experience of them has been on MOD work and they have been awful! If their problem areas are Govt contracts (MOD, NHS, etc) I would see them being re negotiated and farmed out in smaller parcels just like failing franchises are...

 

Carillion Amey have a stupidly long contract to maintain MOD buildings and their delivery is poor but they were the only bidders! The price they put in was accepted and was lower than the preceding contract (of which they also a part of the consortium) but with an enlarged stok of buildings... that sort of maths doesn't work and it is the Govt that should be as accountable as the management.

 

There are a few companies in this Pickle, particularly in the Defence service delivery sector, that will be watching this situation with interest.

[Clearwater]

http://www.thisismoney.co.uk/money/markets/article-4873710/Carillion-protected-bosses-4m-bonuses-crisis.html this may put the cat amongst some pigeons in regard to pensions again it seems they will privatise the profits and nationalise the debts or at least attempt to

 

Erm - check the loss investors have had on Carillion shares...

[locoholic]

It would seem Carillion had failures of management at very senior levels in the business.

But of course the senior figures involved won't lose any money, and will probably walk into lucrative jobs elsewhere - because in the UK we reward failure at executive level, just as we reward success.

 

It's the hapless folk lower down the food chain that will suffer.

[TheSignalEngineer]

(and pretty good quality on delivery, if my experience of working with them on several major rail projects is any guide)

 

My experience of them has been on MOD work and they have been awful! If their problem areas are Govt contracts (MOD, NHS, etc) I would see them being re negotiated and farmed out in smaller parcels just like failing franchises are...

 

 

I must say that some of my experiences with the component parts of Carillion were not always good in the railway field, but they were no worse than most of the others.

 

 

Carillion Amey have a stupidly long contract to maintain MOD buildings and their delivery is poor but they were the only bidders! The price they put in was accepted and was lower than the preceding contract (of which they also a part of the consortium) but with an enlarged stok of buildings... that sort of maths doesn't work and it is the Govt that should be as accountable as the management.

 

There are a few companies in this Pickle, particularly in the Defence service delivery sector, that will be watching this situation with interest.

 

Under-bidding was a hallmark of the Railtrack Infrastructure Maintenance contracts in the run-up to Hatfield. I was involved in one consortium in 1999 where we bid about the same amount as the incumbent but a third company bid considerably less. Railtrack said they thought our bid was technically the best but we could not have the job because we were too expensive. They tried to knock us down to a ridiculously low price and we told them if someone tried to do it for that the job would fail. They let the contract to the lowest bidder and it was in trouble on service delivery from day one, eventually being one of the catalysts for maintenance being taken back in-house. Our Finance Director later congratulated me for failing to get the contract and therefore not getting the company sucked into the morass.

[dibber25]

(and pretty good quality on delivery, if my experience of working with them on several major rail projects is any guide)

 

My experience of them has been on MOD work and they have been awful! If their problem areas are Govt contracts (MOD, NHS, etc) I would see them being re negotiated and farmed out in smaller parcels just like failing franchises are...

 

Carillion Amey have a stupidly long contract to maintain MOD buildings and their delivery is poor but they were the only bidders! The price they put in was accepted and was lower than the preceding contract (of which they also a part of the consortium) but with an enlarged stok of buildings... that sort of maths doesn't work and it is the Govt that should be as accountable as the management.

 

There are a few companies in this Pickle, particularly in the Defence service delivery sector, that will be watching this situation with interest.

 

I understand that Carillion Amey is a separate company from Carillion and only works for the MoD. The sweeping suggestion that their delivery is poor is unfair to very hardworking staff - I know, I'm related to one. 

[daveyb]

The delivery of service to the MOD on infrastructure is poor... ask any military family or quartermaster.

 

Carillion have many tie ups to deliver PPP projects. The parent company is the same

[beast66606]

Announced that Carillion has gone into liquidation this morming.

 

http://www.bbc.co.uk/news/business-42687032

[Mike Storey]

I must say that some of my experiences with the component parts of Carillion were not always good in the railway field, but they were no worse than most of the others.

 

 

 

Under-bidding was a hallmark of the Railtrack Infrastructure Maintenance contracts in the run-up to Hatfield. I was involved in one consortium in 1999 where we bid about the same amount as the incumbent but a third company bid considerably less. Railtrack said they thought our bid was technically the best but we could not have the job because we were too expensive. They tried to knock us down to a ridiculously low price and we told them if someone tried to do it for that the job would fail. They let the contract to the lowest bidder and it was in trouble on service delivery from day one, eventually being one of the catalysts for maintenance being taken back in-house. Our Finance Director later congratulated me for failing to get the contract and therefore not getting the company sucked into the morass.

 

Was that Jarvis by any chance?

[Dave47549]

.

Edited October 4, 2021 by Dave47549
Removed pointless guff

[Bernard Lamb]

I was thinking more on literary rather than musical lines.

Hemingway or Donne?

Indeed the bell doth toll.

Bernard

[Bernard Lamb]

This seems to be developing into a right old mess.

My normally reliable pension experts state that only some of the Carillion companies have gone into liquidation as of this morning.

That means the pension liabilities will come under the PPF and the clock is ticking regarding the period required for sorting things out.

Other parts of the company have not yet entered that phase.

Bernard

[Western Dave]

This seems to be developing into a right old mess.

My normally reliable pension experts state that only some of the Carillion companies have gone into liquidation as of this morning.

That means the pension liabilities will come under the PPF and the clock is ticking regarding the period required for sorting things out.

Other parts of the company have not yet entered that phase.

Bernard

This will develop over a while many of the companies are part owned, consortiums, partnerships or a subsidiary and in some cases a subsidiary of a subsidiary.

It is hugely complicated in some cases and there is also an element of denial/hope sometimes where people/companies think they can carry on.