The Effects Of The Carillion Liquidation Within The Construction Industry Jan 18, 2018Views: 487
It is safe to say that many of us spared a thought yesterday for the 40,000 Carillion staff across the globe who look likely to lose their jobs and livelihood. The company announced that it was going into liquidation rather than administration, meaning that there is little value left in the company. Undoubtedly the staff and all of the company’s sub-contractors will be the worst affected with this sorry state of affairs.
It seems the blame is being landed at the doors of the Board of Directors and even the Government, however, given the size of the organisation it is likely that more than one factor led to its shocking demise. Carillion’s business model was to secure large scale contracts, of which over 400 were Government related. The work was subsequently distributed amongst a number of sub-contractors to obtain the best price and squeeze as much profit out of the end client. Perhaps an indicator of things to come, in 2013 it was announced that Carillion would push its payment terms to 120 days, rather than the industry standard of 30 days, this of course resulted in sub-contractors being placed under additional cash flow pressure. Such decisions mean that large organisations, such as Carillion, have the control and power to squeeze SME’s to breaking point. As could be expected a large organisation with a turnover of more than £5 billion, who sub-contract the bulk of their work, working to 120 days payment, that there will be hundreds of millions of pounds outstanding to thousands of businesses and an even larger amount of their employees.
As mentioned, the real losers are the SME’s who provide services and materials to Carillion. It has been reported that the fall-out will reach over 100,000 people and will ultimately place hundreds, if not thousands of companies into administration or liquidation and will have a devastating impact on many businesses and the families they support. The larger companies do not come out unscathed either. The largest UK construction company, Balfour Beatty, it has been reported, is likely to take a £45m “hit” on Carillion’s liquidation. The Carillion liquidation has undoubtedly created a tidal wave across the construction industry, globally.
The construction industry is a sector which suffers the highest number of insolvencies. Construction companies, including SME’s, make up over 10,000 companies becoming insolvent, each year. This month, the second largest construction company in the UK forms one of those frighteningly large numbers. Once in administration or liquidation it can be very difficult to recover payment, however, you can reduce your risk of not being paid by having a robust credit control system in place to get paid before this happens. In many instances, no matter how robust your system is, you need a helping hand from the experts.
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