黑洞社区

One of the leading associations representing specialist contractors has issued an urgent call for greater protections for subcontractors, in the wake of Carillion鈥檚 problems.

黑洞社区 has seen a letter from Trevor Hursthouse, chair of the Specialist Engineering Contractors鈥� (SEC) Group, to business secretary Greg Clark, sent immediately after the problems at 拢5bn-turnover Carillion emerged in July, saying 鈥渢he recent case of Carillion鈥� revealed the 鈥渇inancial frailty鈥� of the whole construction industry. This, it adds, 鈥渆xposes thousands of smaller companies and subcontractors to huge risks鈥� if main contractors run into the kind of financial problems that have hit the country鈥檚 second-biggest builder.

Analysts raised questions about Carillion鈥檚 future after it was forced to write down more than 拢1bn in its interim results in September, leaving it needing to plug a hole of up to 拢800m in its balance sheet.

Carillion鈥檚 problems 鈥� which interim chief executive Keith Cochrane says could take five years to resolve 鈥� have come in the same year as serious profit warnings at Interserve and Galliford Try and a 拢79m loss for Bouygues UK.

Hursthouse said the slow payment culture means suppliers 鈥渆ffectively fund many construction projects鈥�, and that Carillion specifically 鈥渁nnually procures billions of pounds from its supply chains with a balance sheet that shows it cannot meet those liabilities without imposing unreasonable and lengthy credit periods鈥�.

Carillion has 拢400m tied up in a supply chain financing scheme under which many suppliers have to pay small charges to access their money in less than 120 days.

Hursthouse called for the use of project bank accounts 鈥� whereby money is held in a ring-fenced bank account before payment to suppliers 鈥� to be extended to all public sector contracts. Currently only contracts with central government departments and in Northern Ireland and Scotland must use project bank accounts. He said the current system exposes 鈥渙therwise healthy businesses [鈥�] to failure鈥�.

Hursthouse鈥檚 letter emerged as SEC Group chief executive Rudi Klein hit out at Carillion following publication of its interim results, which included another 拢200m of losses not flagged in July. Klein said Carillion is 鈥渓ooking for reasons not to pay鈥� its suppliers, with SEC Group members reporting 鈥渋ncreased incidences of it holding back money鈥�.

A spokesperson for Carillion said: 鈥淲e value the close relationship we have with our suppliers and we continue to be committed to business as usual with all of our partners and suppliers, including adherence to all payments terms.鈥�

Analysts have valued the amount Carillion needs to raise to fix its balance sheet as 拢440m鈥撀�800m.

A spokesperson for the Department for Business, Energy and Industrial Strategy said: 鈥淭he government believes prompt and fair payment in the construction sector is absolutely vital, that is why we have already taken a number of steps to support businesses.

鈥淲e have encouraged greater use of project bank accounts and introduced the Prompt Payment Charter. Alongside this, we have made a commitment to consult on the practice of retention payments in the construction industry, as well as the effectiveness of the measures relating to payment in the Amendments to the 2011 Construction Act.鈥�