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UK government contractor Carillion collapses

January 15, 2018

British construction and outsourced services group Carillion has gone bust, putting at risk several government contracts. The firm has recently struggled to refinance €1.7 billion in debt and liabilities.

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Carillion logo
Image: Getty Images/AFP/D. Sorabji

The London Stock Exchange listed Carillion PLC announced its compulsory liquidation on Monday, putting an end to months of speculation about the future of the heavily-indebted construction and services giant.

In a statement, the UK's second-largest builder said it had no choice but to begin the immediate process of selling its assets, after failing to secure a financial rescue from the UK government and banks.

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"In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision," Chairman Philip Green said.

The company, which employs 43,000 people globally — including around 20,000 in Britain — had been struggling to restructure, amid debts of about £900 million (€1.01 billion, $1.24 billion) and a pension deficit of £590 million.

GCHQ built by Carillion
Among its many construction projects was the headquarters of the British intelligence organization, the GCHQImage: picture-alliance/dpa/British Ministry Of Defence

Attempts to reassure the public

Carillion runs some 450 UK government projects, including the construction and maintenance of hospitals, prisons, and schools. It also maintains key parts of Britain's rail infrastructure — and recently won the contract to build the new superfast rail line HS2 that will connect London with northern England.

The British government said it would immediately step in to guarantee vital public services, vowing that there would be no fire sale of Carillion's assets, and that employees of its numerous projects should continue to go to work.

Cabinet Office Minister David Lidington — whose role it is to coordinate between government departments — defended the decision not to bail out the stricken firm, telling BBC Radio on Monday that British taxpayers couldn't be expected to bail out a private sector company.

He said some services previously supplied by Carillion would be offered to alternative contractors.

Carillion, which also has operations in Canada and the Middle East, revealed last July that it was losing cash on several projects and had written down the value of its contract book by £845 million. The company's share price has plummeted some 70 percent since last summer.

Carillion crane
Carillion won contracts for major construction projects as well as the provision of public services in London and other cities Image: Getty Images/AFP/D. Sorabji

Short-term vision?

British media reported last year that the firm had under bid on several contracts, while the firm blamed contract delays and a slump in new business for its ballooning debt pile. It said Britain's decision to leave the European Union had led to a slowdown in orders, after UK government departments "reassessed their spending priorities" following the June 2016 referendum.

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The opposition Labour party on Monday urged an inquiry into Carillion's collapse, after it emerged the firm continued to be offered huge infrastructure projects, despite issuing several profit warnings over the past year.

"Given £2 billion worth of government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the government's handling of this matter," said Labour MP Jon Trickett.

He called for the public sector contracts to be quickly brought back in-house to protect public services, jobs and the pensions of tens of thousands of workers.

The firm in its current form was created in 1999 with the demerger of the Tarmac Group into a building materials firm and a service provider, and had revenues of £5.2 billion last year.

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mm/tr (AFP, AP, Reuters)