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Industry warns meaningful change still lacking from government’s Carillion response

A number of industry concerns linked to lost payment and retentions have not been addressed as the construction giant’s liquidation moves forward

The SEC Group has accused the government of failing to introduce meaningful changes to construction payment practices in response to multiple concerns identified around procurement and contracting following the collapse of Carillion.

SEC Group chief executive Rudi Klein said that industry was still waiting for clear commitments, such as retentions reform, to protect the construction supply chain and ensure enforcement of the timely payment for completed work is introduced and championed by government.

Mr Klein said that a number of consultations on the subject of poor business practices in the construction supply chain and recommendations from parliamentary bodies urging changes such as introducing mandatory ringfenced retentions had yet to be addressed by government.

He added, “Government has been holding consultations on these issues, but what are the lessons that it has learned?”

The SEC Group is currently preparing to launch a fresh campaign pushing for amendments that would make project bank accounts a mandatory condition in all public-sector contracts valued at over £500,000.

This would build on calls from parliament’s Public Accounts Committee last month for government to begin consulting with SMEs on how ringfenced retentions and shared bank accounts might be implemented into future contracts.

Next stage of liquidation

The comments were made after the Insolvency Service announced that it had completed the trading period phase of Carillion’s liquidation. This initial phase was launched to maintain continuity of key public-sector services handled by the now defunct company without disruption.

Official receiver Dave Chapman said that agreements had now been reached to transfer the last remaining 278 contracts being provided by Carillion to new management.

Carilion announced in January that it would be entering administration. This marked the largest ever trading liquidation in UK history, creating significant disruption in the construction supply chain.

Mr Chapman said the liquidation process would now switch to looking at Carillion’s trading accounts. This will determine where, and if payments can be made to companies still owed money from Carillion before its collapse was announced.

The SEC Group said that a significant number of concerns remained for building services specialists and company’s following on from the collapse of Carillion. He added that Carillion’s liquidation had been hugely unusual in that the court had given permission for some services to continue until new contractors found to take up major projects.

Mr Klein argued that the trading part of the liquidation had gone relatively smoothly in so far as to find new management of outstanding contracts. This was despite notable ongoing difficulties in ensuring continuation of the hospital operations handled by Carillion.

Lost finance

 A commitment to ensure contractors such as those offering building services support were paid for work undertaken after Carillion announced its liquidation was welcomed by SEC Group.

However, the future of money owed before the company announced it had entered liquidation, and the government’s response to prevent similar impacts on the construction supply chain, remain significant concerns for Mr Klein. 

He said, “The priority now is for the liquidator to work out the total liabilities owed by Carillion and determine if there will be a pay-out to companies still owed money.

“This will not happen soon, and we will likely have to wait until next year until we know what is owed.”

Mr Klein said he estimated, as a worst-case scenario, that the best part of £1bn was likely owed in unpaid retentions payments held by Carillion up to the time it announced its collapse in January 2018.

The organisation said it was uncertain how much of this funding owed to contractors in the HVAC sector would be returned.

Apprentice focus

Maintaining skilled workers in the HVAC and wider construction industry has been another area of concern following Carillion’s collapse. The Construction Industry Training Board (CITB) has therefore been working to try and ensure continued work for apprentices that had lost placements due to the company’s failure.

CITB chief executive Sarah Beale said that the announcement that the trading phase of Carillion’s liquidation was over did not change its ongoing work to find employment for over 100 of the company’s former apprentices impacted by its collapse.

Ms Beale said that 123 former Carillion apprentices were actively trying to find employment in the present market even with work in finding new roles for a significant number of individuals affected.

She said, “The liquidation of Carillion had a huge impact on our sector, over the last six months the construction industry has relentlessly rallied to support the 1,148 apprentices in England and 127 apprentices in Scotland affected.”

“To date we have successfully placed 777 former Carillion apprentices into paid employment in England, with nine of these pending. There are 12 more apprentices in full time education.”

The organisation said that it had contacted every former apprentice of the company after the announcement of its liquidation to offer support via a helpline that remains open. A grant for employers that would support hiring apprentices was also established as part of a wider focus to retain skills in the industry.

Ms Beale said, “While this has been a difficult time it has shown the construction sector’s commitment to ensure young people have the skills and training they need to enjoy a diverse and interesting career in our industry. The passion that Carillion apprentices have shown for our industry has been inspiring. I would like to thank everyone across our industry who has supported Carillion apprentices find employment over this period.”

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