Kisiel Group’s view of the collapse of Carillion

Sustainability in the construction industry has taken a bit of a knock with the news that Carillion has gone into receivership.

Although not entirely unexpected, it is important that the government does not prop up a failing business that is no longer viable. To do this would indicate that mis-management can be rewarded.

The government are offering advice to employees and suppliers of Carillion to try to reassure them following the winding up order and the appointment of the Official Receiver. It will be a big shock to the approximate 20,000 employees in the UK and it must be remembered that this impacts not just on the employee but also their families. I also have huge empathy, as Managing Director of an SME construction company, with the impact on a large number of construction sub-contractors facing uncertainty about work contracts and if they will be paid for the work already undertaken. It is likely that some of them will also end up in receivership. So, the impact will be far reaching.

This highlights the issue that sub-contractors will also be owed money in retentions, even though they have finished on the contracts providing skilled services and this is already under consideration by government with their consultation deadline of 19/1/18.

Annie Summun, my General Manager, attended a meeting only last week at the Department for Business, Energy and Industrial Strategy (BEIS), to discuss the very relevant issues around payment frameworks, withholding of retention payments and a review of the adjudication process. It appears that many large companies withhold retainers unfairly from their sub-contractors, impacting on the cashflow for the smaller companies, either as they do not have the funds available and wish to delay the cost of borrowing or if they have the funds they are using the money to bolster their balance sheet.

Speaking to one of the Master Builders, Kevin McLoughlin, who attended the meeting at BEIS, he advised that the collapse of Carillion had impacts for his company who had been working with them on 3 contracts: staff are temporarily taken off work, he is likely to lose money that is owed to him and he has also lost his forward order book.

Another participant, Terry Wilkinson, said that he accepts that there is a need of ‘larger’ companies to manage the large infrastructure projects but the contract needs to be split up into smaller main contractor units. There is a need for change and surely it is time for the government to have a re-think.

So, should we not now be looking to SME companies to be taken more seriously in the procurement process for construction projects. SME companies are varied: some are specialist, some are more generalist, of differing sizes and offering different skill sets, whilst some are involved in infrastructure projects in the public sector, others are building new housing or undertaking renovations for private clients. Talking to a local councillor from Tooting recently at our stand at London Build, he said that SMEs are more adaptable than large companies and ‘quality’ is a key aspect of their work. So, we have a wealth of skills to be tapped.

As the Federation of Master Builders (FMB) have stated, ‘The Government must learn from Carillions’s demise and assess its over-reliance on major contractors.’ Brian Berry, Chief Executive of FMB, helped to promote SMEs by saying that ‘The Government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots. That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies’.

SMEs are the future of the construction industry and I would urge you to support us at every opportunity you get to create a sustainable future.