Carillion

I'm not knowledgeable about the ways of industry and construction but it seems to me there must be something fundamentally wrong when a key government contractor (who was just awarded a £1.4 BILLION contract a few weeks back) goes into liquidation without the government being forewarned and well prepared for it.

Surely someone should have been doing financial health checks on key contractors to the government and surely prevention would have been more favourable to all rather than liquidation?

I see Corbyn has already jumped in with nationalisation rhetoric - hope for Christ sake it doesn't lead us back to the seventies of British Leyland, wild cat strikes, the power of the unions, miners strike, Arthur Scargill, Red Robbo, and all the other shit.

http://www.bbc.co.uk/news/business-42695522

Let it fail, that's capitalism right?

Don't bail them out with any taxpayers money

What will happen is the taxpayer will bail them out,and a new company will be formed with the same Tory management and Tory directors making money as if nothing happened

The government were warned, and continued to send contracts their way. Top bosses still had £4 million in bonuses awarded this year.

Oh and their Chairman Philip Green was a very cosy advisor to the Cameron government - who’d have thought it.

Growler wrote:Let it fail, that's capitalism right?

Don't bail them out with any taxpayers money

What will happen is the taxpayer will bail them out,and a new company will be formed with the same Tory management and Tory directors making money as if nothing happened

I don't quite follow your question but wouldn't it be exactly the same as a nationalised industry consistently failing and the government of the day ploughing millions into keeping it going?

For instance it was cheaper to ship coal half way across the world and sell it for less than the Nationalised NCB could produce it from the mines in this country.

Yet the Labour government at the time wouldn't allow this to happen.

So how did that political intervention in the market benefit the taxpayers then?

Considering they issued three profits warnings last year, something stinks.

This how capitalism works. The bosses changed the rules to protect their £4m bonuses and below even quotes The Daily Mail on this. How can it be right that the greedy arseholes that drove this company into liquidation qualify for £4m worth of bonuses in the first place let alone keep them?

https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=11&cad=rja&uact=8&ved=0ahUKEwiQtMLpgNvYAhUDBsAKHeIpArIQFghiMAo&url=http%3A%2F%2Fwww.constructionenquirer.com%2F2017%2F09%2F13%2Fcarillion-bosses-had-bonuses-protected%2F&usg=AOvVaw0G2aJQmm3j4AgOIXxqQJz4

We in the military have lots of Carillion linked assets, people and even some catering. It seems MoD as well as government will have some very awkward questions needing answers. A pound to a pinch of crap the bankers will make a profit out of it and the taxpayer will have to dig deep. Pension Protection honchoes have already said the fund will look after everyone involved and the government have begun paying the smaller suppliers so they don't suffer.
Tax payer will have to fork out a bob or two.

I was going to mention the bosses changing the rules so they kept their bonuses but xmiles beat me to it. Also read this morning that hedge fund companies have made an estimated £300million gambling on Carillion being liquidated.
Ultimately the tax payers will have to pick up the costs and less money will be getting to the right places such as the NHS.

Any Government contract is a license to print money. 
Carillion are only managing the project and top of the tree, all the spadework is contracted out, hence more management costs.
The ever decreasing tax payer pool will once again take the hit for rich executives' folly.

Could have a knock on effect to even small companies like mine.  The majority of what they do is construction.  But from what i have read so far they dont deserve to be bailed out.

One of their top bosses quit last year but has kept his over 600k a year salary until october this year....

Ridiculous

They not only oversee construction, but under PFI, also charge a ridiculous rental fee, which can go on for many years. Any shortfall has to be down to sheer bad management, as their fees were never low. Governments were happy to let it run, under the banner of 'helping industry'.
My experience, working with private industry, is that they always overcharge a government department, and rarely live up to promises, or expectations.
It was never a good system.

gloswhite wrote:They not only oversee construction, but under PFI, also charge a ridiculous rental fee, which can go on for many years. Any shortfall has to be down to sheer bad management, as their fees were never low. Governments were happy to let it run, under the banner of 'helping industry'.
My experience, working with private industry, is that they always overcharge a government department, and rarely live up to promises, or expectations.
It was never a good system.

Ive seen it myself.  Another company that does what i do charges the nhs a fortune and supplies them with sub standard rpe for ridiculous amounts.  For each individual mask they charge 4 quid plus vat for a mask that costs 50p tops.  Because they are shite.

They then charge more than double what we do for a full day.  Our full day consists of 24 tests.  (Ive been known to do 35+ ) there full day is 12........

Its happening all over in all industries.

Bollotom2014 wrote:We in the military have lots of Carillion linked assets, people and even some catering. It seems MoD as well as government will have some very awkward questions needing answers. A pound to a pinch of crap the bankers will make a profit out of it and the taxpayer will have to dig deep. Pension Protection honchoes have already said the fund will look after everyone involved and the government have begun paying the smaller suppliers so they don't suffer.
Tax payer will have to fork out a bob or two.

The banks will actually lose heavily on this as they are by far the largest creditors given the extent of the loans that they made.  They may have security over some assets as a part of their loan covenants but the net end product will be substantial losses.
The ones who will really gain are the special managers (i.e liquidators) appointed by the High Court- all partners in PwC. I worked in liquidations and receiverships for a few years when I was working as an FCA with KPMG many years ago and I can guarantee, from personal experience , that there will be some very fat fees heading their way- all guaranteed by the major creditors.
Amongst the worst losers will be the ordinary shareholders who will get nothing.
Before all you armchair socialists start jumping up and down  shouting that it serves the rich capitalist Tory voting bastards right- the major shareholders are your pension funds and the larger insurance companies  and investment houses who often manage your pensions and insurances. So it's me and you who are amongst the worst losers, apart from those who will lose their jobs
Many smaller firms will benefit as contracts are bought out by them from PwC in their capacity as liquidation managers as well. Carillion have a multiplicity of really good contracts which will now be auctioned off.
You also need to know more about profit warnings as these are very technical affairs and not just random statements - but that's another story. But they are much more frequent than you would imagine and recently companies like Carphone Warehouse, Rolls Royce, Wlliam Hill and Interserve have all issued them as demanded by  Stock Exchange rules and corporate legislation- and none of those companies will follow the Carillon route. A profits warning is precisely that- it isn't a notice of impending death. Even issuing a series of profit warnings isn't unusual- there is a very sound strategy behind it. But I'm not going to lecture you on that!!

gloswhite wrote:They not only oversee construction, but under PFI, also charge a ridiculous rental fee, which can go on for many years. Any shortfall has to be down to sheer bad management, as their fees were never low. Governments were happy to let it run, under the banner of 'helping industry'.
My experience, working with private industry, is that they always overcharge a government department, and rarely live up to promises, or expectations.
It was never a good system.

I used to work in the public sector and saw how privatisation "worked". When comparisons were made between the public and private sectors the figures were always rigged to ensure the private sector bid was apparently better value for money. Two ways this was always done were to load the public sector with an added arbitrary extra cost and to include in the private sector comparison a large reduction for the corporation tax that the company would theoretically pay. In practice these companies never pay any tax as they move ownership offshore into tax havens.

And of course as Carillion demonstrates the fat cats take all the profit and the taxpayers take all the risk.

Somethings should be beyond private enterprise, for the national interest things like prisons and the NHS and Railways should be under government control and not subject to the will of shareholders. This is the result of privatisation for privatisation sake.

The real losers again are the employees re job loss and pension, although the pension protection scheme will cover the majority of the pension, those in work will lose about 10% those already retired i think will be covered in full.

wessy wrote:Somethings should be beyond private enterprise, for the national interest things like prisons and the NHS and Railways should be under government control and not subject to the will of shareholders. This is the result of privatisation for privatisation sake.

The real losers again are the employees re job loss and pension, although the pension protection scheme will cover the majority of the pension, those in work will lose about 10% those already retired  i think will be covered in full.

Good points Wessy-I agree with you on your first paragraph although there needs to be more debate around the railway system
I think your second paragraph is also accurate.

Carillion have always been supply chain orientated and were the first company to fully utilise the principle of taking on large numbers of apprentices and then farming them out to their smaller suppliers to train them up - and pay their wages - so if you wanted to get subby work from Carillion you had to agree to taking on apprentices. At one stage  believe they had over a thousand apprentices indirectly employed. This gave Carillion a massive advantage in acquiring public sector contracts because most public sector bodies also have an obligation to leverage social value from their procurement, so when they are spending vast amounts of public money they also want to create jobs and work in the supply chain for small businesses. Given that Carillion also supply meals to hospitals and have maintenance contracts for a large number of NHS and prison service assets small companies across the board will suffer - as will all the youngsters who will lose their training and employment opportunities.
Profit warnings can be strategic and aren't necessarily an indicator of a failing business so it's understandable why they were awarded new contracts, however this is another example of the private sector doing exactly what successive governments have done themselves - raided pension funds to prop up cashflow. It should be illegal. If pension funds were ring fenced to say projected payout plus 10% contingency, companies and government would have to work within their means and financial issues would be identified much earlier and handled with far less devastating effect.

Lusty,
Is there any evidence that they did raid their pension fund ( like Captain Bob Maxwell did with Mirror Group) or did they merely default on paying in sufficient contributions as indicated by actuarial valuations of potential future liabilities over the estimated lives of pension fund members.? The first may be illegal, and as far as I understand it, the second one isn't

rammywhite wrote:Lusty,
Is there any evidence that they did raid their pension fund ( like Captain Bob Maxwell did with Mirror Group) or did they merely default on paying in sufficient contributions as indicated by actuarial valuations of potential future liabilities over the estimated lives of pension fund members.? The first may be illegal, and as far as I understand it, the second one isn't

I don't know for sure Rammy. It may be the second scenario but if so surely the actuaries would have stepped in and raised the contribution from both employer and employee if they forecast a shortfall? I'd have thought not doing so would be gross negligence. Alternatively, if they knew there was a shortfall and yet consciously continued to under contribute, is that not illegal?

wanderlust wrote:

rammywhite wrote:Lusty,
Is there any evidence that they did raid their pension fund ( like Captain Bob Maxwell did with Mirror Group) or did they merely default on paying in sufficient contributions as indicated by actuarial valuations of potential future liabilities over the estimated lives of pension fund members.? The first may be illegal, and as far as I understand it, the second one isn't

I don't know for sure Rammy. It may be the second scenario but if so surely the actuaries would have stepped in and raised the contribution from both employer and employee if they forecast a shortfall? I'd have thought not doing so would be gross negligence. Alternatively, if they knew there was a shortfall and yet consciously continued to under contribute, is that not illegal?

There are a  vast number of companies whose pension fund is lower than the actuarial valuation of future pension fund liabilities. However not all those liabilities are current and so any shortfall must be made up over time. So-its not illegal to have a shortfall,  but there is a contractual liability to make good the shortfall over time as the pension fund liability crystallises.
What is worrying is that with stock markets around the world at ,or near to record highs, and with most pension funds investing in equities ,that shortfalls still exist.. However they're based on expected lives of pensioners (and dependents in some cases) and thus are best estimates of future liabilities. The valuations depend also on the discount rate chosen to discount the future liabilities ( sorry- that's a bit technical). That is often pitched at an abnormally high level- another possible problem.
Businesses are obliged to disclose their longer term pension liabilities in the Balance sheet if material.
I've just been reviewing the Annual Accounts of the RSPB and they have  disclosed a pension liability of £90 million with annual income  this year of £146m. That's revenue- not profit! That's a frightening number.
So for many organisations its a massive liability which many will attempt to pass over to the Pension Protection scheme.
But the answer is no- if you have a pension fund liability (a shortfall) you don't have to make it good immediately