If you live in the UK, you’ve probably noticed in passing that our second biggest construction firm – Carillion – has gone into liquidation. Behind the headlines promising to safeguard hospitals, schools and other public projects is the story that I want to tell here – of what will happen to the 30,000 suppliers (comprising perhaps 150,000 employees) working for Carillion on hotels, train stations, football stadiums and other private sector contracts, now that the paltry 48 hours of support they were offered on Monday has come to an end.
This is the story of an incompetent, emotionally anaesthetised government, comprised of people who were born rich, have never run companies and who are permanently insulated from loss. It is the story of neo-liberalism applied only to the weak, by political weaklings.
Background: Carillion is a business behemoth, formed out of the acquisition of many of the oldest established construction firms in the UK. Buying the companies helped eliminate competition, making it easier for the remaining oligarchs to win business. Rather than expressing alarm, the civil service chose instead to award them extra points for experience, making it still easier for them to win contracts. Their dominant position meant that, when they began facing serious cash flow problems they were awarded even more work in order to keep the business afloat. It has subsequently emerged that part of the problem was deliberate under-pricing when putting together bids - but the civil service failed to exclude them from consideration even when the work was flagged as financially risky.
In 2016, Carillion employed 43,000 people, had sales of £5.2bn in 2016 and was valued at just under £1bn. Last week it was worth £61m. Today it is worth nothing. (http://www.bbc.co.uk/news/business-42666275)
Analysis: Let’s take the example of a new build retirement village. Working on it, you will find self-employed painters, carpentry crews, small building firms, supported by small companies manufacturing timber frames or party walls, and carpet suppliers, double-glazing firms, vehicle rental companies, architects and electricians.
Some will have had a long relationship with Carillion, travelling round the country on jobs and returning home every few weeks to see their wives and children. Others, suppliers of manufactured goods, will have seen them as a tight-fisted but essential part of their business. Some, new to the game, will have been proud to have won their first supplier contract and amazed to think they were now able to take on their first employees.
Today, the owners of those firms are taking whatever remains of their personal savings and credit cards to pay whatever redundancy they can. I’m able to explain what it is like because it happened to me.
Personal experience Some years ago, I too was part of a supply chain supporting a company that had won public funds for a construction project. At first, everything was wonderful – I had just set up my company and it was clear that my work was deeply appreciated by the client. However, in this case, the company then decided to relocate to more expensive offices in order to pitch for work in the City. When it turned out that they had overreached themselves, they found themselves locked into a contract that was costing more than they could earn.
As a subcontractor, I didn’t notice at first. Payments sometimes arrived a few days late but I was very keen to make a good impression and didn’t want to complain. When one payment was delayed significantly, I spoke to my contact who said it was just a temporary problem. Later, I tried the finance office, who confirmed that payment was imminent. After that, finance stopped answering the phone and ignoring our increasingly assertive emails.
Then came the fateful day when the company went into Administration. It turned out that they had been waiting for our final payment from the government and that they had used the funds (illegally, in my view) to pay larger creditors rather than the people it was meant for. They closed the same day.
As an unsecured creditor, I was able to see the list of people who were owed. One of them, a former employee, had accepted redundancy on the grounds that they would use him as a consultant. He had then worked for nine months without payment before the company shut.
Others, who were employing staff on the contract, had paid tens of thousands in wages in the expectation that they would be reimbursed. We just had to go without an income. Of course, we did not go without expenditure, the consequences of which we felt for several years to follow.
In the end, the Administrator’s fees used up all the remaining funds in the company and we, like our fellow creditors, received nothing.
Late and failed payment: So, today, I feel for all the people who have worked their socks off to please Carillion. They will have become used to receiving payment late (£26bn is being withheld from companies today by big business, according to Mark Hooper of Indycube). They know that some construction companies have a policy of automatically disputing all contracts as they know subcontractors will agree a reduction in order to secure final payment. Perhaps, like me, they will eventually have received a cheque signed in person by the wife of the owner of a multi-billion pound company. They will sigh and accept that no deal with the devil ever pays as you thought it would.
In all likelihood, there will have been a period of at least six months in which Carillion will have been insisting that the work be done, while withholding payments and refusing calls. Having paid the wages and in many cases installed the goods, their chances of being paid are now zero, thanks to a government that has opted only to protect public sector contracts. Nervous breakdowns, strokes and divorce will now follow.
Conclusion: At the heart of this are the highly ideological, inexperienced neo-liberals who attended the government's emergency COBRA meeting (Cabinet Office Briefing Room A, in case you are wondering). These people truly are a riddle wrapped in a mystery inside an enigma, to quote Churchill. It seems they rejected the idea of allowing Carillion to collapse because of the message it would send out about capitalism and Conservative attitudes to the public services. At the same time, they could not save Carillion in its entirety as it might remind people of the ‘too big to fail’ banks. So they took the decision to save the bit that the public cares about and hope they don't notice the widespread bankruptcy and unemployment that will follow as hotel and care home projects come to a juddering halt.
As ever, this government has attempted to solve the problem by passing the burden onto those who are too weak to fight back. They have allowed the remaining shareholders to fall into the abyss, but at £61m it is a cheap way to prove a principle. Small companies in every county in the land will collapse, but there will be no organised voice to represent them and the government will huff about the need to be choosy about who you work with, even though they helped create the oligarchy.
What they’ve done today is no different to the decision to double tax small companies while letting large ones negotiate what they want to pay. It is the same as blaming immigrants for the failings of the NHS while relying on them to staff it. And it comes from a government that appoints companies to rail contracts without even checking whether they have enough drivers to run the trains. It is a shameful episode that is being felt, in the most painful way, in tens of thousands of homes right now.