Inquiry needed into questionable decisions around Carillion – Cable

Responding to reports that Carillion is to go into liquidation, Leader of the Liberal Democrats Vince Cable said:

In the light of today’s announcement that Carillion plc has gone into liquidation, Vince Cable has called for urgent action;

The government must now take responsibility for the big contracts run by Carillion, or re-tender them, to keep the supply chain going and protect thousands of jobs. Ministers must minimise the damage to the capacity of the construction industry.

We also urgently need a parliamentary inquiry into some of the very questionable decisions made in the past few months, not least the award of public contracts to a company that was clearly in danger of collapse. The issue of the former chief executive still being paid his salary, plus perks and bonus, is also a reward for failure that has to be looked into.

Given how many contracts Carillion had, across the whole spectrum of public services, there will be a lot of nervous people today, both employees and those who rely on Carillion for services. We can expect urgent debates in Parliament as this unwinds.

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37 Comments

  • John Marriott 15th Jan '18 - 3:46pm

    As the late Edward Heath said about the Lonhro affair; “The unacceptable face of capitalism”.

  • Dr Rosemary Reynolds 15th Jan '18 - 4:08pm

    Vince Cable’s comments are absolutely right. I’d like to know who audited the accounts, who signed off on them when they clearly were not right. My husband worked 33 years for Carillion, formerly Tarmac, and I worked with Tarmac for several years, so we are really saddened the company has collapsed and let down so many people in UK and abroad. Wondering what will happen to my husband’s pension now; not a worry we ever expected to have. And as usual in twenty-first century, the man at the helm risks employees’ future but not his own finances.

  • John Marriott 15th Jan '18 - 5:59pm

    Dear Dr Reynolds,

    Regarding your husband’s pension scheme you can thank the last Labour Government, who around twelve years ago, set up something called the Pension Protection Fund, which provides compensation to people whose companies go bust. He won’t get 100% but he should get most of it.

    I have to wonder, if the Tories had been in power, whether they would have been acted in the same way.

  • nigel hunter 15th Jan '18 - 9:52pm

    to me the 40% of public contracts indicate a monopoly position for this company. The indication is that the Conservatives went for the lowest bid and that Carillion was the main private contractor used. If the lowest bid is taken without investigation of the details it is inevitable that costs would rise leading to problems in the chain. Lowest bids should always be checked ie if it sounds too good to be true ,it is too good to be true . As Conservative ideology to believe private is best and the only way is their mantra if the procurement structure is not rigorously scrutinized by an independent body this will happen again.

  • I watched the whole of the Carillion urgent question debate on BBC Parliament. Dr Cable sat there for a few minutes for the Ministerial statement and then depated, and apart from a low key question from the Mp for Eastbourne that was it. Not a Lib Dem to be seen in a well attended and lively debate.

    Must do better.

  • I’ve just watched Corbyn’s video on stopping the privatisation of our services…I agreed with every word…
    I remember the remarks on here about his leadership of the opposition… Not only has he grown into that role but he sounds more, and more, like the leader of this country!

  • For info from the Pension Protection Fund Website

    If You Have Retired

    You will have been receiving a pension from your scheme before your former employer went bust.

    If you were beyond the scheme’s normal retirement age when your employer went bust, the Pension Protection Fund will generally pay 100 per cent level of compensation, which means we will generally pay you the same amount in compensation when your scheme enters the PPF.

    Your payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase.

    This information may also apply if you retired through ill-health or if you are receiving a pension in relation to someone who has died.

    If You Retired Early

    If you retired early and had not reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90 per cent level of compensation based on what your pension was worth at the time. The annual compensation you will receive is capped at a certain level.

    The cap at age 65 is, from 1 April 2017, £38,505.61 (this equates to £34,655.05 when the 90 per cent level is applied) per year. This is set by DWP.

    From 6 April 2017, the Long Service Cap came into effect for members who have 21 or more years’ service in their scheme. For these members the cap is increased by three per cent for each full year of pensionable service above 20 years, up to a maximum of double the standard cap.

    http://www.pensionprotectionfund.org.uk/Pages/Compensation.aspx

  • @ expats Agree with you. I think JC has hit a nerve that will resonate. Cable should have said it …. but he didn’t.

    If someone had told me ten years ago Virgin would be allowed to run GP surgeries for profit eight years ago I would have thought they were kidding.

    Oddly enough, some years ago during a stay in the Edinburgh Royal Infirmary I discovered that my PFI prepared meal involved brussel sprouts being processed and frozen in Wiltshire – transported and stored in Glasgow – and then later transported to Edinburgh where they were de-frozzed and “prepared”. Not the greenest green I’ve ever had.

  • Richard Easter 16th Jan '18 - 1:35am

    It is insane what is outsourced / privatised now. G4S run rape crisis centres for profit. That surely is the ultimate in a corporatist’s wet dream, and it is hard to see how victims of rape benefit from one of the most corrupt corporations in the world making money off their horrific ordeal.

  • Could somebody please explain why a company with a £ 580 million pension deficit could pay out £ 83 million in dividends in 2017 _ and will continue to pay its deposed former Failed M.D. £ 600,000 pa until October 2018. Don’t expect to see him at the food bank.

  • avid Raw 16th Jan ’18 – 8:29am…………..Could somebody please explain why a company with a £ 580 million pension deficit could pay out £ 83 million in dividends in 2017 _ and will continue to pay its deposed former Failed M.D. £ 600,000 pa until October 2018…..

    In a gentler age it was called the ‘Unacceptable Face’ of capitalism..Today it’s just called Capitalism…

  • The inquiry needs to also look at the insolvency process, it seems wrong that the banks are seen as premium creditors whereas many (small) businesses who have outstanding invoices, which it is clear Carilion didn’t pay because it was using the monies for other things are highly likely to not see a penny.

    Whether what is needed is some form of government-backed factoring service like the Pension Protection Fund, that businesses can apply to and get some or all of their outstanding monies recovered, needs to be looked at. Whilst I know invoice factoring businesses do exist, the question is whether their prices are cost-based or price-based – I suspect it is the latter, given the large cut they take of factored invoices.

  • If memory serves, Philip Green (ex. Carillion chairman) was an adviser on Corporate Social Responsibility to none other than David Cameron….

    Nuff said..

  • John Marriott 16th Jan '18 - 11:13am

    It sinks, doesn’t it? When are we going to get cast iron regulations agreed by the governments of the world to stop these practices going on? Not much hope that a Trump led USA will take the lead following those tax cuts!

  • John Marriott 16th Jan '18 - 11:15am

    For ‘sinks’ read ‘STINKS’ and, by the way, is it time to sort out those oligarchs as well?

  • Nonconformistradical 16th Jan '18 - 12:59pm

    “it seems wrong that the banks are seen as premium creditors whereas many (small) businesses who have outstanding invoices, which it is clear Carilion didn’t pay because it was using the monies for other things are highly likely to not see a penny.”

    Quite – and according to the Guardian some of these (small) businesses are owed £millions. It stinks!

  • David Becket 16th Jan '18 - 4:15pm

    I agree with David Raw on the “must do better”
    We are not promoting ourselves, no wonder we are on 7%.
    It starts at the top. Vince has made some good comments on Carillion, he should have repeated them and thanked the government for taking note of his early view that the firm should not be bailed out by the taxpayer.
    The incompetence of this party in PR beggars belief, an open door for good publicity missed.

  • Vince was on today’s Radio 2 Jeremy Vine show talking at length about Carillion. I expect many more people listen to Radio 2 than watch the Parliament channel.

  • David Becket 16th Jan '18 - 7:21pm

    Point taken Mike, but at 7% in the polls you cannot afford to miss an opportunity, and the press would have been in the house.

  • nvelope2003 16th Jan '18 - 7:46pm

    Private sector companies that fail, either through mismanagement or changes which render their products redundant normally become insolvent or bankrupt. This is how we weed out the inefficient and out of date in order to allow others to thrive.

    What happens to public sector organisations in similar circumstances ?

  • nvelope2003 16th Jan '18 - 7:54pm

    Nonconformistradical: I heard the editor of the Guardian say that the change from the rather inconvenient Berliner style to a conventional tabloid newspaper will save that paper £millions so why did they not do it in the first place ? The phrase “physician heal thyself” springs to mind.

  • John Marriott 16th Jan '18 - 7:54pm

    I started off this thread with the quote from Heath about ‘the unacceptable face of capitalism’. Since the Berlin Wall came down, signalling symbolically to its critics the failure of state planning and socialism, we have been marching to the drum beat of ‘public bad, private good’. Not any more. Thanks to corporate greed and dodgy deals (BHS, rail franchising, PPFI etc.) the pendulum has been slowly swinging back. Not that there aren’t salary abuses in the public sector as well. The fact is that we need both sectors; but we need firm regulation in every concern be it public or private.

    The danger is that the public in general will become convinced that there is only one way to go and, guess who is likely to benefit politically from this? It certainly won’t be Sir Vince.

  • Nonconformistradical 17th Jan '18 - 7:48am

    @nvelope203
    I’m not sure that the format of the paper edition of the Guardian (and I was looking at its website anyway) has much to do with Carillion.

    A long time ago the Guardian was a broadsheet – I think it might have been the first UK broadsheet to reduce its size.

  • nvelope2003 17th Jan '18 - 9:34am

    Nonconformistradical: The point I was trying to make was that the Guardian failed like Carillion to run its business efficiently and has to rely on gifts from readers to survive while telling everyone else how things should be done. At the time it reduced its size it spent £80 million on new presses although it could have used contract printers as it does now. I do not think there are contractors who could economically print the Berliner size but obviously there are printers who can produce a conventional tabloid more efficiently.

  • nvelope2003 17th Jan '18 - 9:48am

    Governments seem to be unable to get value for money. They invite bids from a small number of very large companies who then sub contract the work to smaller companies and both companies expect to make a profit. Why do they find it impossible to place contracts with the people who actually carry out the work ? I hear horrifying stories of public bodies paying 10 times the price for things like lap tops than you would pay in the shops. Schools paying vast amounts for stationery and books which can be bought for a fraction of the price. Surely with bulk purchases the price should be lower, not higher. Skip loads of brand new books being sent to the rubbish tip. Who makes these decisions ?

  • nvelop2003 Are you a Liberal Democrat voter ? If you are, I’d be fascinated to know how you differentiate your usual neo-liberal stance from right wing Thatcherite Conservatism.

  • nvelop2003 “This is how we weed out the inefficient and out of date in order to allow others to thrive.”

    I’m afraid that kind of uncompromising utilitarian attitude makes my blood chill….. especially since the latest headline today from the building industry is that ‘innocent victims’ could suffer from Carillion’s collapse”.

    Then we have news that another outsourcing company, Interserve, which amongst many other things is responsible now for the probation service has debts of over £ 543 million – we also learn that both Interserve and Balfour Beattie are accused of malpractice in the treatment of migrant labour in Quatar. Capitalism red in tooth and claw is not a pretty sight.

    There now needs to be a thorough look at the practices and consequences of these outsourcing companies and a serious rethink on in house provision. Whether the former Cabinet Minister who sold off the Royal Mail is able to do that is an open question.

  • nvelope2003 17th Jan '18 - 6:25pm

    David Raw: While Royal Mail was in the public sector strikes were a regular occurrence but I have not heard of any since it was privatised. Why is this ?

    I am not in favour of treating working people (or anyone else) harshly or unfairly but when I worked in the public sector this sort of thing was the norm and it made people very depressed and unhappy. I saw so called highly educated bosses throw files and piles of paper at their subordinates. If they were not doing that they were endlessly nit picking and criticising staff. I never saw that in private firms because they needed their staff to work not sit around sulking all day.

    If we did not close down inefficient and out of date firms how would they continue to function – by subsidies paid by the tax payer or more borrowing ? I think there might be some complaints as the standard of living dropped. The problem with Carillion was that its tender prices were too low and its costs too high.

    No I do not want to see anyone thrown out of work but if nothing changed we would still be running horse drawn vehicles and using candles for lighting. The idea that private companies are all wicked and inefficient is incorrect but those who are must be dealt with by punishing the bosses, not the workers.

  • david thorpe 17th Jan '18 - 8:47pm

    the biggest owner of uk shares are pension funds. so if a company cant pay divis because it has a deficit, all that does is create a bigger defiict for another company, which then cant pay divis, until before you know it pension fund deficits are getting wider not smaller.

    i would also say the pension fund deficit is a notional nbnumber that impacts on absolutely no ones life today. the bankruptcy of a company, which happened to carillion, impacts on everyones life, because that is a company with no money, but a pension fund deficit is a completely hypothetocal number.

    the solution is to move the pension funds up the capital structure to protect the interests of all concerned.

  • @nvelope2003 – “The problem with Carillion was that its tender prices were too low and its costs too high.”

    I think you will find that Carillion’s problems stem from wanting to grow big quickly and so naturally funding its growth through borrowing, then discovered that both the way the contracts were structured and the margins on projects, particularly in the early years (like the rail franchises), weren’t what they thought they would be and thus having a widening gap between money in and money out.

    Interestingly, it would seem they borrowed extensively from the banks, rather than follow what many US high growth US businesses do and finance growth from venture capital. Perhaps this is a failing of the UK system.

    Also interestingly, whilst some blame does reside with the management in failing to properly understand their business, this style of non-thinking is also quite common: we’ve seen it in the media with people assuming that just because companies x, y & z have very large turnovers, they are firstly, highly profitable, so need taxing more and secondly aren’t paying their fair share of (corporation tax) and thus are avoiding tax…

    @david thorpe – “i would also say the pension fund deficit is a notional nbnumber that impacts on absolutely no ones life today”
    Well if you complete the circle and actually used the pension funds as a sovereign investment fund, it would be obvious that the pensions deficit would impact on peoples life’s today, because they would be unable to invest those monies in businesses of today, creating jobs and opportunities today (to fund future pensions contributions).

  • Yvonne Finlayson 17th Jan '18 - 11:12pm

    I’m intrigued as to how they were awarded contracts after a profit warning. Public procurements of this scale have a Pass/Fail finance check. (Assumes procurement bothered to check).

    Which makes me wonder if other companies bid, or if margins are becoming so tight its not of interest? Service contracts often require you to reduce the price year on year, or at retender. Operations costs meanwhile go up. Starve services of funds, whether in the public or private sector, and they will collapse.

  • Malcolm Todd 17th Jan '18 - 11:59pm

    Yvonne Finlayson 17th Jan ’18 – 11:12pm
    “I’m intrigued as to how they were awarded contracts after a profit warning.”

    I make no pretence to expertise in this field, but … how many companies issue a profit warning every year? And how many of those subsequently collapse? It doesn’t sound to me like something that implies a company is on the verge of bankruptcy. But perhaps someone can put me right about that.

  • Wikipedia says, “A profit warning is a warning declaration issued by a listed company to investors through a stock exchange. It warns investors that the profit of the company in the coming quarter will significantly decline when compared with that of the same quarter of previous year, or the company may even make a loss.”

    So it seems it doesn’t necessarily follow that a company will make a loss following a profit warning – let alone get to the point of administration. It would be a very crude measure of the stability of a company for procurement processes.

  • Malcolm Todd 18th Jan '18 - 12:31am

    Thanks. Guess I could have looked that up myself! 😉 But it is rather what it sounds like; and a strange basis for concluding that a company shouldn’t be used to provide services.

  • Yvonne Finlayson 18th Jan '18 - 8:28am

    The point of submitting 2 years of accounts for tenders is for comparing financial performance over an extended period of time. Occasionally the buyer provides a table for financial ratios to make it easy for procurement to check liquidity and working capital for example. This should have raised an eyebrow even if NO profit warning was issued. The profit warning should have served as a red flag to undertake solvency checks.

    Nvelope has raised the issue of the public sector buying things at ten times the price. There are often frameworks in place however you need ALL of the buyers on the framework to purchase from the framework to leverage the agreed contract price. All too often buyers use purchasing cards or buy off framework, as on initial appearance the framework price might look more expensive than what they can buy at themselves. They may not be aware of any kickback mechanisms, which means that although the product looks expensive up front, at the end of the contract period an amount is paid back to the buyer, lowering the price to much cheaper than it can be bought on the open market.

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