'Desperate dash for cash'
Commenting on the evidence heard in Parliament today, Rt Hon Frank Field MP and Rachel Reeves MP, co-Chairs of the joint Work and Pensions and Business, Energy and Industrial Strategy Committee Committees inquiry into Carillion, said:
"This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong.
We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams. Everything we have seen points the fingers in another direction - to the people who built a giant company on sand in a desperate dash for cash."
The Committees are publishing Carillion's final Business Plan ( PDF 4.39 MB), the "recovery plan" that was in the end presented days before the company was forced into liquidation on 15 January 2018.
It sets out the management's take on what was wrong with how the company had operated. It appears that Philip Green, appearing before the Committees today, was to continue his tenure as Chair of the company regardless of this analysis.
However, the picture painted by today's second panel of former directors of Carillion appears at odds with the Business Plan's description of the problems at the company, and the summary of its situation that appears on page 6 (put to the former directors by BEIS Committee Member Antoinette Sandbach MP this afternoon) :
"The Group had become too complex with an overly short term focus, weak operational risk management and too many distractions outside of our 'core'"
Key themes and issues
From page 18 "Key themes and issues":
- "Insufficient understanding of, and adherence to, contract requirements"
- "Ineffective change control"
- "Poor planning and lack of effective contract controls"
- "Portfolio not balanced"
- "No focus on contract demobilisations"
From page 34 on cash flows:
- The company lists net working capital of minus £834 million by the end of 2017.
- Before that, in their worst year in 2009 they only had minus £400 million.
- They weren’t forecasting positive working capital until 2021.
- There was a further provision in place at year-end of £60 million, on top of those already recognised
£990 million deficit
There is scant mention of the pension schemes, which are now estimated to carry a £990 million deficit. The company hoped to get clearance from TPR for the schemes to be decoupled from it and go into the PPF via a Regulatory Apportionment Arrangement (RAA): an arrangement like this is only possible if insolvency is otherwise inevitable within 12 months. From that RAA proposal, there was a calculated combined s75 – "full buyout value" - pension deficit of £2.34bn at the end of 2017. That is to be set against an expected return, at that stage, to the pension schemes on insolvency of £11.4 million. Upon the compulsory liquidation on January 15 2018, the pension schemes automatically transferred into the PPF.
It appears the company intended to keep the "red flag" Early Payment Facility going, and at the same high levels, until at least 2022 – despite a promise by Interim Chief Executive Keith Cochrane and Finance Director Zafar Khan that it would be reviewed.