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Carillion: How will the impact of the crisis be felt across the Midlands?

By Pete Madeley | Business | Published: | Last Updated:

The sheer speed of the collapse of Carillion has been met with a mixture of shock and concern from the region's politicians and business leaders.

A rainbow over Carillion's headquarters in Wolverhampton but a storm has gathered

While it was common knowledge that the UK's second biggest construction firm was in serious trouble, few expected it to completely unravel in such a short space of time.

Entering administration would have allowed some degree of breathing space, with accountancy experts drafted in to run the firm while a long term solution was sought.

But with liquidation all of that goes out of the window.

More background on the Carillion crisis

Carillion's collapse should not make much immediate difference to the services it provides, as the Government has said it will provide funding to maintain the firm's work in the public sector.

That could involve some of its 450 public sector contracts being brought in-house, although it is likely that huge contracts such as the Midland Metropolitan Hospital, in Smethwick, will require further private sector support.

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However, a multitude of questions remain – not least over jobs and employee pensions.

In the West Midlands, no sooner had the dust settled on the announcement, than thoughts had turned to the plight of Carillion's thousands of small business suppliers caught up in the mess.

The firm is thought to have more than 7,000 sub-contractors.

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Midland Met Hospital, Smethwick, where Carillion is carrying out work

Corin Crane, chief executive of the Black Country Chamber of Commerce, said: "Our number one ask at this point is that decisions are made quickly, specifically regarding contracts that Carillion are already involved in.

“Not just in the Black Country, but across the UK, thousands of small businesses are involved in Carillion’s supply chain – many businesses have already completed their work and are awaiting payment, whilst many are yet to begin work but have planned rigorously for it."

His views are echoed by West Midlands Mayor Andy Street, who said everything possible must be done to make sure that suppliers are paid.

"We have to push that as many of the sub-contractors involved with Carillion get paid as much as possible," he said.

"What we don't want is for this to be contagious within the sub-contracting industry across the West Midlands.

"That means we have got to make sure that maximum value is achieved with the creditors.

"I will be taking an active interest in the role of the liquidator in making sure that this is being done."

Corin Crane - small business contracts must be prioritised

The concern over supply chains – both locally and across the country – has led some to predict dire consequences for the construction sector.

Lee Causer, a partner at accountancy firm Moore Stephens, based in Birmingham, said he expects contracts to be delayed, and some suppliers to go bust.

“Many of Carillion’s suppliers will have automatically assumed that a group the size of Carillion would be rescued," he said. "Therefore, many will not have prepared for its collapse and will struggle to get alternative contracts in place.

“The failure of Carillion will inevitably lead to disruption across the supply chain, and financial turmoil for sub-contractors who relied on business from Carillion.

“Its collapse could trigger a number of insolvencies across the construction sector, in an industry that already experiences the highest levels of insolvency per year in the UK.”

Staffordshire businessman Mike Cherry, chairman of the Federation of Small Businesses, said it was vital that Carillion’s small business suppliers were paid what they are owed as quickly as possible.

It is an uncertain future for Carillion's workers

He said failure to do so put those companies 'in jeopardy', meaning even more jobs would be at risk on top of Carillion’s own 20,000 UK employees.

It has been suggested that the company has been making small suppliers wait 120 days to be paid, with unpaid bills said to go back for several months.

"When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses," Mr Cherry added.

Paul Forrest, Head of Research at Midlands Economic Forum, flagged up the potentially damaging impact on supply chains in the West Midlands.

Labour has called for answers over the Government's handling of Carillion, with shadow business minister Bill Esterson warning: "If Carillion’s suppliers aren’t paid, they will go bust too with the loss of thousands of jobs."

Meanwhile Wolverhampton South East MP Pat McFadden, said he hoped 'as much employment as possible would be maintained out of the wreckage of all this'.

"More broadly the focus will be on the very important public contracts to build hospitals, maintain schools and all the other work Carillion was involved in, often through a complex network of subcontractors," he added.

"The Government now has an urgent task to stabilise the situation and give confidence to the public who rely on the services for which Carillion and its subcontractors were responsible.”

Pete Madeley

By Pete Madeley
@P_Madeley_Star

Political Editor for the Express & Star. Responsible for local and national political stories, opinion, comment and analysis.

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