Carillion Collapse. Another example of why the 'Supply Chain' mentality needs to end.

The news that Carillion has collapsed, will I fear, result in a blood bath as the reality sinks in that their suppliers won’t be paid for the last few months work. .

While the government and PWC have made some bold promises about protecting public sector works and employees being paid ‘during the liquidation’ there have been no promises for creditors. Carillion was already rated by many as the worlds worst company, with a serious attitude problem when it came to paying it’s suppliers. So many suppliers will have a lot of old invoices unpaid.

The problem is that as well as a main contractor, Carillion is also a first-tier service provider for a host of private and public sector clients and the bulk of it’s workforce on those contracts will be direct and agency contractors. As unsecured creditors those companies providing those staff won’t see a penny. Individual employees have a degree of statutory protection and while many may face redundancy, the thousands of small suppliers will loose three to six month’s worth of invoicing. Given that the likelihood is that 90% of that invoice value is cost, as well as no longer having any income from the contract, those suppliers will lose it all. They may as well have drawn all that money out of the bank and set fire to it all in the car park. Many of those firms won’t survive and despite being small companies that are ‘the backbone of the economy’ there will be no assurances or help from government ministers for them or their staff when they lose their jobs.

Having been through a similar experience with another failed service provider a few years ago, if I were supplying Carillion now as an agency or a subcontractor, but working for an end user client, I would down tools immediately until there is an assurance from the end user that instead of paying Carillion (which means the banks and PWC) the end user client diverts those funds to the actual suppliers who did the work prior to the liquidation.

If you are at the receiving end of this situation the hardest thing is to comprehend is that last week there was a grudging intention to pay you; now, there isn’t, and this view is shared by everyone. The end user will shrug and say, ‘so sorry, there is nothing we can do’. They will probably only pay a fraction of what they owe Carillion and end up with a whole load of work done for virtually nothing.

It really is time the government changed the law in this area and insisted that all supply chains were underwritten by the end user in the event of a service provider further down the line collapsing. Moreover, insolvency laws need to be changed so that when another firm sweeps in and picks up the good bits they must take on the trade creditors of the failed company too. Finally, as the dust settles and the loss of so much income, puts strain on those Carillion suppliers who do survive, the authorities need to understand that insolvency and failure to pay debt is not ‘in the normal course of business’. It is dishonest, unethical and those responsible should be in jail. If a few more were, then maybe there would be a few less firms like Carillion around, which can only be a good thing.

Tim Loftus - Director of Prisma Recruitment Limited