Carillion's Suppliers Fear `Domino' Effect After Liquidation

(Bloomberg) -- U.K. suppliers to Carillion Plc are “desperately” trying to figure out the impact of its failure on a vast network of businesses that had contracts with the indebted construction services company, according to the head of an industry lobby.

"Carillion outsourced everything,” said Rudi Klein, chief executive officer of the Specialist Engineering Contractors’ Group, whose members include steel-working firms, electricians and plumbers. “It was a management company, it wasn’t a construction company or an infrastructure company.”

Carillion, which obtained court approval on Monday for liquidation, “provided management services, and sometimes not very well,” Klein said in a telephone interview. “Its payment performance to its suppliers was appalling.”

Carillion’s portfolio of contracts span the gamut of Britain’s public infrastructure, from building projects at schools and hospitals to telecom cables, railways and nuclear decommissioning, according to its website. These involved hundreds of small and medium-sized companies, presaging a messy winding up of the Wolverhampton-based company. It’s also sparked a political outcry about the role of the private sector in public contracts.

Mind Boggling

Carillion’s announcement has roiled shares in supplier Speedy Hire Plc, which rents equipment. The stock fell as much as 12 percent, the most since September 2015. Balfour Beatty Plc, which has a joint venture with Carillion, said it’s expecting a cash impact of between 35 million pounds ($48.2 million) and 45 million pounds.

Construction is the most outsourced sector in the U.K. and Carillion’s failure raises the question of whether the current model of state contracting is fit-for-purpose, Klein said.

“The mind boggles,” he said. “There are other approaches to procurement. This is simply not on anymore.”

The business group is trying to assess the extent of its members’ exposure and seeking government proposals on what will happen to those owed money. Some project accounts could be “ring fenced” so that the coordinating firm and their suppliers would be paid simultaneously, Klein said.

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