21 February 2018

The collapse of construction giant Carillion

What does it mean for those within the industry?

The collapse of construction giant Carillion on 15 January 2018 has caused shockwaves not only across the construction industry but also the UK economy as a whole. The impact of Carillion’s demise will be felt by customers, subcontractors and suppliers for many months to come. Carillion acted as a major supplier to the public sector across the UK, delivering almost 450 contracts to government across a number of different areas and as a result, the UK Government are providing funding to the Official Receiver to maintain these contracts in the short term, until an alternative can be found. In addition, Carillion’s 30,000 suppliers and subcontractors, owed around £2 billion overall, risk receiving little or nothing back of what they are owed.

As was seen in the banking crisis of 2008, following any large scale failure, intense scrutiny and investigation of the events that lead to the collapse will follow. If there was any doubt of the importance of the construction industry within the UK economic and political landscape, the response of the UK Government is evidence to the contrary as it was announced only one day after the compulsory liquidation order was lodged that the Official Receiver’s investigation into the company’s failure would be fast tracked. This investigation will cover the conduct of the directors, both those in post at the time of the company’s insolvency and also previous directors of the company and the results of the investigation will be revealed over the coming months.

So what does this mean for those within the industry?

Going forward, even for those not directly affected in the collapse, there will be a future impact, as a minimum, through increased scrutiny of financial and non-financial information reported by a company.

In the short term, the Financial Reporting Council (FRC) has issued an article to remind Boards of companies in the construction and business support services sectors of their reporting obligations. This article covers Board members obligations to ensure that the company annual report and accounts provide sufficient, reliable and relevant information to allow its users to understand the company’s performance and financial position as well as assess the going concern status and longer term viability of the company. In reality this will mean that there will be further scrutiny and challenge of not only financial estimates and judgements used in preparing financial information but also the information provided as part of the Directors’ Report (for all companies) and the Strategic Report (for companies meeting medium and large company thresholds) going forward.

A link to the article is provided here.