Fylde small business group blasts Carillion over late payments to sub-contractors

Carillion staff have been involved in the electrification work on the rail line between Preston and Manchester
Carillion staff have been involved in the electrification work on the rail line between Preston and Manchester

The head of the small businesses organisation founded in Blackpool has blasted Carillion over its late payments to sub contractors and warned many could be under threat too.

Carillion which employed 20,000, went into liquidation owing £900m and with a £587 m pension deficit.

MIke Cherry from the FSB

MIke Cherry from the FSB

But its collapse also threatens hundreds of small businesses it used to carry out its maintenance construction and services contracts who will now not get paid.

Federation of Small Businesses National Chairman Mike Cherry, said: “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.

“These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.

“Sadly these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.

“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses.

"Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”

FSB development manager Paul Foster said: “There will undoubtedly be a ripple effect felt by businesses and their employees either directly or indirectly in the supply chain in Lancashire.

"Priority must be given to making sure that those owed money are compensated while those who may be concerned about the loss of orders are given assurances that any new contractors coming in will work with them to try to offer some certainty around future work.”

Cabinet Office Minister, David Lidington told Parliament on Monday that the Official Receiver would investigate the role of the company's former and current directors, warning they could face "severe penalties".

He spoke amid growing anger at bumper payouts received by former chief executive Richard Howson.

He pocketed £1.5 million in salary, bonuses and pension payments during 2016 and, as part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.

Mr Lidington also said the 11,000 Carillion staff working on Government contracts will be paid.

But Tim Roache, GMB union General Secretary said the rest will have their wages stopped today and the Government should help.

He said: “No worker should go hungry, default on a bill or miss a rent or mortgage payment because of a crisis they did not cause. Not a bail out for the bosses, but security for Carillion’s private sector workforce.”

The leader of the Rail, Maritime and Transport union, Mick Cash is pressing Transport Secretary Chris Grayling and other ministers to clarify who qualifies as a public sector worker after its announcement that firms working for Carillion on purely private sector deals will only have two days of Government support.

Meanwhile Carillion subcontractors and other small firms which might be at risk due to the failure of the construction giant are being urged to seek professional advice at an early stage to help safeguard their future, an insolvency expert has warned.

Paul Barber, who is also a partner at Begbies Traynor, says firms could be affected in a number of ways. “For subcontractors awaiting payment for work carried out, there will be an immediate impact on cashflow. They will of course still be expected to pay any outstanding labour or materials costs for the work they have incurred or purchased and make VAT payments due to the crown authorities which may in some cases include their invoices to Carillion.

“But also in the period ahead there will also be an impact on their balance sheet. Bad debts and work in progress may have to be written down, weakening the balance sheet strength. If not risking insolvency, in practical terms it could affect their credit rating, making it harder for them to raise finance, or their ability to win future work since in many formal tendering processes, the balance sheet is used as a part measure of their stability.

“Many small subcontractors do not have cash reserves or assets to fall back on so will be in a vulnerable position. It is all the more galling as with this type of work it can be that the sub-contractor has carried a lot of the risk inherent in the main contract as often seen by way of low margins and extended payment terms of 90 days or more.

“Those which might be at risk should take professional advice as soon as possible and understand that the best option might be – for example, raising finance to overcome immediate cashflow problems, negotiating with their own creditors or even a formal insolvency procedure.”

.