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Construction leaders say smaller firms will pay price for Carillion’s collapse

PUBLISHED: 11:09 15 January 2018 | UPDATED: 14:37 15 January 2018

An insolvency body has warned small firms to examine their finances after Carillion's collapse. Picture: Getty Images/iStockphoto

An insolvency body has warned small firms to examine their finances after Carillion's collapse. Picture: Getty Images/iStockphoto

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Construction industry figures have been reacting to the news of construction giant Carillion’s collapse – saying smaller subcontractors will bear the brunt of the crisis.

Carillion, which employs 20,000 workers across Britain, put itself into liquidation after struggling to contend with debts of almost £1.5bn, including a £590m pension deficit.

The Federation of Master Builders (FMB) said the government “must learn” from Carillion’s demise and accused it of an “over-reliance” on major contractors.

“Carillion’s liquidation is terrible news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion’s demise,” said chief executive Brian Berry.

“The government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots. That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies.

“Construction SMEs train two-thirds of all apprentices and are a sure-fire way of spreading economic growth more evenly throughout the UK.”

Prof Rudi Klein, chief executive of the Specialist Engineering Contractors’ (SEC) Group, said it was trying to assess the “exposure” of the industry to Carillion’s collapse.

“We represent people who provide construction services, mechanical services, plumbing services, and of course the engineering sector. Because of the value of the work it [the engineering sector] does, it is most exposed to outstanding payments from Carillion,” he said.

“Firms in East Anglia are going to be worried about outstanding payments. We are urging them to suspend work if they are not being paid at the moment.”

He also said it would “not be tenable” for Carillion’s staff – who were told to go to work as normal on Monday – to continue working for much longer.

“It is going to be much more difficult for those private sector contracts where Carillion is employed, and we do not yet know what the government is doing to help on local government contracts,” he said.

Waveney MP Peter Aldous tabled a Private Members’ Bill on cash retentions in the construction industry, which when improperly managed often have a disproportionate effect on small and medium-sized enterprises (SMEs), who work with tighter margins and cash reserves.

Retentions are deductions usually ranging from 5-10% from monies due to a construction business, which are ostensibly held as a security deposit.

Mr Aldous claimed that in practice they are often “withheld to bolster the working capital of the group withholding them”.

His proposition followed an independent review which confirmed retentions are a critical issue that affect the viability and productivity of SMEs in the construction supply chain and increase the cost of construction.

During the bill’s first reading in the House of Commons last week, Mr Aldous said: “The abuse of retentions has a negative knock-on domino effect that cascades through the construction industry. It restricts investment in new equipment and facilities. It prevents firms from taking on more work, and discourages them from employing more people and investing in apprenticeships.”

Prof Klein said Mr Aldous’ bill would come too late to help Carillion’s subcontractors, but he hoped the company’s collapse would encourage government to support the legislation.

David Howell, East Anglia area lead at the Federation of Small Businesses, said agreed that change was needed in public procurement to safeguard small firms.

“It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.

“When the dust settles, there is a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses,” he said.

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