Should the Carillion collapse prompt a rethink for trustees of both private and public-sector companies?

January 18, 2018 by admin under Public Sector Private Sector 0 Views

There are hundreds of public sector projects and ongoing private financed facility managers that have been hit by the collapse of the massive construction & facilities management company Carillion.

It would be very easy for the individuals that control our public and private suppliers to bury their heads in the sand and think that this eventuality is indeed in the minority however, this of course is not correct!

As we are now all painfully aware, the construction giant announced on Monday it would be entering compulsory liquidation after talks with its lenders and the Government failed to result in a rescue package being launched.

Carillion, which has in excess of 20,000 employees, is understood to have public sector or public/private partnership contracts worth £1.7 billion, covering everything from school dinners and hospital cleaning to the construction of HS2 and the maintenance of over 50,000 Army homes.
If the government will not step in to help a company that controls so much public work after the issue of three separate profit warnings, then how do the individual boards of these private and public organisations prepare for a catastrophic collapse of a major outsourced supplier and indeed, could this truly happen elsewhere?

If you now consider that back in September of 2017 the Interserve board issued a profit warning that resulted in a 50% fall in their share price. This has subsequently fallen by another 30% since a second profit warning issued by the company in January 2018. This worry for the clients of these organisations must therefore be taken seriously with regard to mitigation planning.

Since September of 2017 many household names have issued severe profit warnings which have resulted in massive share price falls.

  • 14 Sep – Interserve Board Report – Profit warning delivered by the Interserve board leads to a share crash of over 50%
  • 23 Nov – Centrica profit warning triggers record one-day share price fall
  • 3 Dec – Financial Times – what do the following companies have in common? Daily Mail & General Trust, Carillion, Pendragon and Ultra Electronics? Answer: their shares have all fallen by around 20% on a single day in recent weeks after they warned investors that profits would be lower than expected!
  • 31 Dec Government refuse to bail out Carillion
  • 4 Jan – Telegraph – Debenhams has been savaged by investors after the department store chain issued a shock profit warning following dismal Christmas sales and a failure to entice shoppers with cut-price goods. Sales have dropped by 18%…
  • 8 Jan – Financial Times – Mothercare shares have fallen 25% after the issue of a profit warning…
  • 10 Jan – Telegraph – Moss Bross shares have fallen 16% after being the third retailer to issue a profit warning over the festive period following disappointing sales.
  • 15 Jan – Carillion filled compulsory liquidation
  • 18 Jan – BBC – Interserve have issued a second profit warning and their shares have dived a further 30%. Thats an 80% drop in the last year. The company employs over 80,000 people…

We may indeed believe that these companies will now put in place rescue packages that will result in them clambering out of these dire situations to continue operating however, as can be seen from the collapse of Carillion, this is not always the result. It may be considered, by the time such a warning is issued, the damage may be irreversible.

Is it therefore, not the responsibility of the people that control our service companies and indeed those that utilise these facilities and construction companies to ensure that should the unthinkable happen and their suppliers fall into receivership then do they have a plan that will mitigate this fall out?

Ministers have given assurances that the Government will provide funding to enable all public services delivered by Carillion to continue. This does not however, cover the private sector work in place and therefore the question must be asked – what would your organisation do if your facilities management company collapsed?

Have you a contingency plan in place?

Do you know what the impact would be?

How exposed are you?

All these questions form part of a strategic review which we carry out with clients. I hear you asking why a technology company is carrying out such activities. Quite simply, effective and efficient delivery must be backed by a robust process. We have delivered technology solutions for many organisations to support their processes. It is only when a software house, such as i5 Group, fully understands the organisation that they can be in a position to deploy technology and marketing services to provide full support and achieve positive outcomes.

In 2017, such a strategy review and subsequent implementation of process automation, was delivered by our Strategy & Innovation Director for an FM company who were running on spreadsheets. With a turnover of £124 million it was time to digitally transform. The delivery identified a projected saving of over £750K within the first year, simply as a result of process automation.

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