GCC contractors must learn from Carillion's mistakes

Once a leading light of the global construction market, Carillion has formally folded its operations. For the Gulf’s contractors, the Carillion story should serve as a caution

COMMENT, Business, Projects, Carillion, Collapse, GCC construction, UK contractor

I suspect that the majority of Construction Week’s audience will agree with what I am about to say: Carillion’s collapse is the most definitive development that global construction markets have witnessed since the economic crisis of 2008-09.

For the wide spectrum of sectors that provide for and depend on construction activity, last week’s news was a warning siren, drawing attention to an important example that our regional would do well to learn from.

As this issue of the magazine goes to print, Carillion’s official receiver (OR) has been tasked with implementing a fast-tracked study into the performance of the company’s incumbent and previous directors, according to a BBC report. This after British prime minister Theresa May denied that a government-funded rescue of Carillion would be reconsidered, adding that “taxpayers cannot be expected to bail out a private-sector company”.

Carillion’s collapse will not only hurt the UK’s economy; it will also perturb global stock markets and construction giants. A report by the Telegraph stated that up to 30,000 smaller, private-sector companies that work with Carillion are now at the risk of losses running into billions. In addition, Carillion’s 43,000-strong global workforce faces the threat of unemployment.

However, a statement by accounting firm PwC, acting on behalf of the OR, emphasised Carillion’s employees “should continue to attend for work” and “will continue to be paid as normal”.

Analysts speaking to numerous media outlets in the UK have asserted that the signs of Carillion’s failures were clearly visible. The company’s increased debts, soaring pension costs, and delayed sub-contractor payments are being touted as the symptoms of Carillion’s deep-rooted financial woes. Clearly, the aftermath of Carillion’s downfall will be felt throughout the UK’s construction sector in the months – and perhaps even years – to come.

For the GCC, a region that Carillion had started to exit last year, it would now be prudent to review contracting models and practices. After all, Carillion is hardly the first business that the Gulf’s construction community has seen close down. For instance, Niall McLoughlin, senior vice president at Damac Properties, told Construction Week in July 2017 that cash constraints were challenging the region’s mechanical, electrical, and plumbing (MEP) contractors, adding: “Most MEP contractors have been through a very difficult time between 2009 and 2013. It came with financial burdens, which is why you will find that some MEP contractors [ended] their operations locally.”

The passage of time may lessen the blow of Carillion’s downfall, but if the Gulf’s contractors want to avoid meeting the same fate as the former giant, they must conduct a thorough, realistic, and honest review of their activities in the new year. It might also be worth updating current audit programmes to take a more judicious and discerning approach. Ultimately, an inward-looking, precautionary approach is the bare minimum that international – and GCC – contractors can adopt in such times.

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Construction Week - Issue 765
Jun 29, 2020