What construction companies can learn from the Carillion collapse

On 15th January 2018, Carillion collapsed after banks refused to provide any further financial support following fruitless rescue talks over the weekend, and in the aftermath the huge company going into liquidation, construction firms must now modernise or face the same fate.

Carillion was the second biggest construction company in the UK, and considered by some to be too big to fail, and its demise is predicted to cause disruption throughout the construction industry.

After losing money on major contracts, it ran up huge debts of around £1.5bn. Many are outraged that the audit process missed this, as the demise and losses accrued over a number of years.

The 19,500 workers for Carillion in the UK have been told they will be paid until the end of January, but after that it is unknown what will happen. The tens and thousands of subcontractors are likely to be hit the hardest, and have been left largely in the dark about whether they will see any of the money they are due.

In order to focus now on looking forward to how the industry can learn from these catastrophic mistakes and make sure they don’t happen again, construction companies can begin by:

  • Reaching out to those affected by the collapse, to discuss career opportunities and offer support.

Businesses can also make the following conscious efforts:

  • If they need to extend payment terms, chances are they are stretching yourself, so companies need to be realistic about the profitability of potential work to avoid slowing down site progress and to avoid cash flow problems.
  • Remember that contracts can under-perform, so businesses need to not spread themselves too thinly, have a clear business strategy, and have a contingency plan.
  • Negotiate with lenders to allow for room to manoeuvre in the event of disputes.
  • Seek advice when a business plan is not working, so they can attempt to restructure and fix any problems.
  • Do not continue to trade if insolvent.

When thinking about what changes the government can make Richard Beresford, chief executive of the National Federation of Builders, said: “When a major contractor goes into liquidation, it highlights the importance of diversifying those to whom you award contracts.”

Beresford added: “Many large regional contractors miss out on work simply because they are not among the usual suspects. Let’s not forget that £10.5bn of the UK construction industry’s annual turnover is withheld in retentions by clients and large contractors from regional SMEs in their supply chain.”

From small time builders all the way up to the big players, the construction industry has been chaotic recently, and businesses need to be committed to avoiding the domino effect that could hit Carillion’s creditors.

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