- The government’s handling of the collapse of construction firm Carillion has been criticised.
- Carillion has around 450 public contracts but the government wouldn’t step in to back the company’s £1.5 billion debt pile.
- Transport Secretary Chris Grayling handed Carillion part of a £1.4 billion HS2 contract last summer in the same week as its debt crisis began. This has led to criticism of his judgement.
- “Normal tendering processes were followed,” PM’s spokesman said. “Taxpayers cannot be expected to bail out a private company.”
LONDON — The government has defended its handling of the collapse of UK construction giant Carillion, insisting that “taxpayers cannot be expected to bail out a private company.”
Carillion began liquidation proceedings on Monday after battling a £1.5 billion debt pile for around six months. Once worth over £2 billion, the company’s demise is one of the largest corporate failures in Britain for decades.
The government’s handling of the crisis has been criticised. Carillion is one of the UK government’s biggest contractors — working on everything from HS2 to school meals — and the government continued to give the company contracts worth around £2 billion even after its debt crisis was first revealed in July last year.
Fiona Cincotta, a senior market analyst at City Index, said on Monday: “It has been more than surprising, possibly even negligent, that the UK government continued to dish out contracts to Carillion even though their future has looked uncertain for some time.
“Over £2 billion worth of government contracts were handed to Carillion during the time that the firm gave three profit warnings. This screams negligence on the behalf of the government and is a costly mistake that the UK government can ill afford.”
Ministers were involved in crisis talks between Carillion and its creditors over the weekend but the government wouldn’t step in to support Carillion, hastening its demise.
Russ Mould, investment director at AJ Bell, said in an email: “The group’s fate was sealed when it became clear that no money would be forthcoming from taxpayers to help keep the beleaguered group afloat.”
The government defended its position on Monday, with the Prime Minister’s spokesman telling journalists: “It’s regrettable that Carillion has not been able to find suitable financing options with its lenders … but taxpayers cannot be expected to bail out a private company.”
Jon Trickett MP, Labour’s Shadow Minister for the Cabinet Office, on Monday called for a “serious investigation” into the government’s awarding of contracts to the troubled company.
‘Big questions about due diligence and judgment’
Questions have been asked about Transport Minister Chris Grayling’s decision to award HS2 contracts to Carillion despite its financial difficulties. The company was part of a consortium of three companies that won a £1.4 billion HS2 joint venture just a week after the debt troubles emerged.
Andrew Adonis, the former chair of the government’s national infrastructure committee, told the Guardian on Friday: “It looks as if Chris Grayling may have been bailing out Carillion as well as Virgin.
“They got HS2 contracts from him after their troubles emerged in the summer, raising big questions about his due diligence and judgment.”
Labour’s Trickett said in a statement: “Given £2 billion worth of Government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the Government’s handling of this matter.”
Theresa May’s spokesman denied Grayling fed contracts to Carillion in an effort to keep it afloat, saying “normal tendering processes were followed.”
“HS2 is not at risk as a result of this,” the PM’s spokesman said. “It will be carried out.”
The Prime Minister’s spokesman said the government would provide money to Carillion’s liquidators to ensure essential public services contracted to Carillion continue to run as normal. Carillion is understood to have around 450 public contracts.
“Initially it is the case that via the liquidator the government will be paying the receiver to ensure services continue to run as normal,” the spokesman said. “There is a longer-term issue whether services will come in house…. Either way it will be done in an orderly fashion.”