Without question, Carillion’s liquidation is a seismic event for the UK’s construction sector.
I have worked with Carillion in the past and its extensive business pervades virtually all areas of the UK’s construction & engineering sector, not just major construction but infrastructure (road & rail), public sector, facilities management and complex engineering and consulting.
As the UK’s second largest Main Contractor, it often sits at the top of the contractual tree on many major developments and frameworks both internationally and nationally.
The news that it is going to enter liquidation signals the death-knell for that business. There are a number of ways of managing insolvent situations such as Company Voluntary Arrangements or entering Administration to see if some or all of the business could be restructured and traded out of its insolvent position. Clearly, the decision, after much negotiation and discussion, is that there is no business to be traded out of insolvency.
If you are involved either as a consultant or contractor and have a direct contract with Carillion you are unlikely to get paid in the near future. Given the extent of secured (lender) debt and pension deficits the picture looks grim for unsecured creditors. In that context, it is important that you check your contracts and, if necessary, issue notices of termination so that you can stop incurring further costs until the future of whatever project you are engaged on is determined and possibly a new contract put in place. You may be asked to novate your contract to a different contractor of the Employer / Lender, or the Employer / Lender may step in itself to complete the project.
The ripple effect of Carillion’s liquidation is that contractors and consultants further down the supply chain will be affected. An insolvency situation is the last remaining time when a “pay when paid” clause is allowed to operate; it was otherwise outlawed in 1998. This means that even though you have no direct contract with Carillion you could still end up not being paid as the contractor or consultant further up the supply chain could refuse to pay you as it has not been paid itself. It is therefore critical that you vet your own list of projects to determine whether Carillion is involved in any of these projects, as you would need to be very careful about how you managed incurring further costs whilst the effect of the Carillion situation is resolved.
In certain circumstances, direct payment mechanisms can be put in place to keep projects live whilst the insolvency situation is factored in and dealt with. This is something be discussed in both of the above situations as the effect of Carillion’s liquidation needs to be minimised as far as possible.
In terms of clients, it can be possible to novate agreements to other contractors, one exception is in the case of other Public Sector clients where the Public Contract Regulations 2015 prevent this. Further consideration needs to be given to transferring in that case.