In-Depth

Carillion collapse: Impact on the North West

Carillion collapse: Impact on the North West

The collapse of Carillion in January was felt across the length and breadth of the UK with the future of major construction and infrastructure projects in Scotland, the North West, the Midlands and the South East thrown into disarray overnight. As the fallout from the demise of the country’s second biggest contractor continues, Move Commercial takes a closer look at the impact here in the region and examines the outlook for some of our biggest developments.

Words by Lawrence Saunders

 

“A sad indictment for construction and outsourced services” is how a spokesperson for the Royal Institution of Chartered Surveyors (RICS) described the demise of Carillion.

One of the projects held up by many commentators as a considerable factor in Carillion’s failure was right here in the North West – the new £335 million Royal Liverpool Hospital.

Originally due for completion in March 2017, Carillion pushed its handover of the scheme back to February 2018 before, in December 2017 informing the Royal Liverpool and Broadgreen University Hospitals NHS Trust that it could no longer meet that date either.

Carillion blamed the delays on bad weather, asbestos and issues with cracks in beams that required substantial remedial works.

In January, the trust confirmed that no new date for the handover had been provided, before chief executive Aidan Kehoe offered a further update on the saga a month later.

“At this stage the preferred option for the Hospital Company is to work with the existing sub-contractors and Carillion staff who have been working on the scheme to ensure continuity in the completion of the hospital,” he said.

“That involves complex discussions with the sub-contractors to ensure we can get them onsite as early as possible.

“We remain 100% assured that the hospital will be completed and we will give the people of Liverpool a fantastic facility that they will all be proud of in the years to come.”

 

Carillion collapse - impact in the North West

The new £335m Royal Liverpool Hospital

 

Elsewhere in the region, other major projects with Carillion involvement have so far managed to avoid such palpable disruption.

For instance, work has continued undisturbed at the vast £800m Airport City Manchester development.

A joint venture between Carillion, Beijing Construction Engineering Group (BCEGI) and the Greater Manchester Pension Fund, the scheme’s construction work was being undertaken by BCEGI and therefore was left unaffected by the problems at Carillion.

Meanwhile at No8 First Street, the Greater Manchester Property Venture Fund’s 170,000 sq ft Grade A office project, Rayner Rowen has been drafted in to complete construction – replacing main contractor Carillion.

“We had robust contingency plans in place and were able to bring in Rayner Rowen quickly to finish the building,” says John Hughes, managing director of Ask Real Estate, which is managing the development on behalf of the fund and Patrizia.

“We were also able to retain some of the key contractors on the job which maintained continuity and it was business as usual within a fortnight.”

Hughes admits it has been hard to watch the events at Carillion unfold as they have done and expects the demise of a “tier one contractor” will have wider repercussions.

Despite this, Hughes is also somewhat optimistic that the loss of a major player in the industry can be of benefit to smaller companies in the North West moving forward.

“Change always opens up opportunities and when the market experiences such a significant event like this there is a real opportunity for other firms to try and fill the gap.”

 

Carillion collapse - impact in the North West

No8 First Street, Grade A office project in Greater Manchester

 

Carillion had also been lined up to deliver the second Embankment building in Salford’s Greengate neighbourhood. BAM Construction has since been recruited to deliver 100 Embankment – a nine-storey 166,000 sq ft Grade A office scheme.

Substantial projects aside, the demise of Carillion has also, of course, had a sizeable impact on the fortunes of supply chain companies in the North West.

Estimates put the amount owed by Carillion to sub-contractors nationally at £2 billion.

One North West-headquartered company firmly rooted in the company’s supply chain was Speedy Hire.

Carillion had been one of Speedy’s biggest customers and reportedly owed the tool hire group an estimated £2m at the time of its collapse.

Despite the substantial debt, Speedy has said it does not expect the collapse of Carillion to affect its financial situation.

It remains to be seen whether the estimated 110 smaller firms in the Greater Manchester area working with Carillion will be as resilient.

“Carilion’s liquidation has had serious knock-on effects for the many smaller firms in its supply chain in the North West,” says Caroline Meehan, director of the Federation of Master Builders (FMB) North.

“Within the UK-wide membership of the FMB, there are firms that have lost hundreds of thousands of pounds and worse still, companies that have gone out of business completely because of Carillion’s liquidation.

“What we need to avoid is the collapse of Carillion now cascading down the supply chain and taking out even more innocent smaller firms in its wake.”

“In the long-term we need to review the criteria by which the public sector procures its lead contractors.”

Alongside the inevitable cuts to Carillion’s 20,000-strong UK workforce, the impact on the training sector has also been profound with around 1,400 Carillion apprentices left in limbo.

Students at a training centre in the Liverpool City Region were told mid-lesson that they had to leave as the electricity was about to be switched off. Some members of the class later discovered they were unable to access their work online.

The Construction Industry Training Board (CITB) has given its backing to apprentices affected by Carillion’s failure and is working with the government on their redeployment.

CITB is also supporting ex-Carillion staff in the region in finding new employment by setting up a careers page which is accessible on its website.

“While a large number of Carillion jobs have been transferred to other organisations, we are aware that there are workers in the North West who may still be without a new role and that as a result, the supply chain may be impacted,” says Gillian Brewin, CITB partnerships manager for the North West.

“Currently, there are 21 employers in the North West offering at least 60 different job opportunities in a wide range of roles.

“While the level of support has been outstanding to date, I encourage more employers to step up and hire these talented workers.”

 

Carillion collapse - impact in the North West

Plans for the £800m Airport City Manchester development

 

Following the initial wave of redundancies and finger pointing, thoughts in the industry have turned to what lessons can be learnt from Carillion’s downfall.

“Naturally Carillion’s collapse has had an effect on the delivery of a number of major projects around the North West,” says Jim Nicholson, CEO of North West property and construction specialist Pochin’s.

“But while the delivery of those schemes will ultimately be fulfilled, in the long-term we need to review the criteria by which the public sector procures its lead contractors.

“There is also a propensity for this type of contract to go for the lowest price on the false assumption that slim margins, negated by large turnover, will still ultimately deliver quality to budget.

“Until we address these habits then the industry is going to continue operating with the inherent risks that saddled Carillion.”