Carillion liquidators demand local authorities pay 20% and maybe up to 70% extra for company’s contracts

“Councils with Carillion contracts are being hit with steep new charges in the wake of the outsourcing giant’s collapse, HuffPost UK can reveal.

PWC, which is overseeing Carillion’s liquidation, is demanding local authorities stump up on average 20% extra for contracts such as library services and construction work as the Official Receiver attempts to claw back the firm’s losses, according to the Local Government Association (LGA).

It is understood town hall chiefs are now scrambling to take services back in-house amid fears that bills for ‘weekly charges’ and ‘contributions to overheads’ could climb by up to 70% in some cases, the LGA said. …

The LGA, meanwhile, has urged ministers to intervene, underlining that cash-strapped councils can ill afford the price hikes.

Bosses at London’s Ealing Council have told HuffPost UK the authority has already taken its £2m contract with Carillion for library services back in-house. The alternative was closing libraries, they said.

“We did receive a figure from PWC suggesting a weekly charge for running the library service, including a ‘contribution to overheads,’” said a council spokesman.

“We are waiting on their latest figures and clarification of how they have been calculated. In order to secure the most efficient, value for money and high-quality library services for residents and the future of the service, the decision was taken to bring the service under the direct control of the council.”

The council is withholding payment, saying PWC must spell out how the charges were calculated.

PWC said new charges reflected the cost of the work, but stressed that councils can contest them.

It is thought around 20 top tier councils had contracts with Carillion, for services from major civil engineering works, school meals and cleaning services to library management, ICT and road gritting. …

Carillion, which had public sector contracts worth £1.7bn and employed 20,000 British people, went into liquidation in January after a major profits warning last year.

The group’s portfolio included providing school dinners, cleaning and catering at NHS hospitals, building HS2 and maintaining 50,000 army base homes for the Ministry of Defence. It folded with a reported £5bn of liabilities and just £29m left in cash.

Its directors will face MPs on Wednesday to explain, among other things, why shareholders continued to be paid while there was a pension deficit of £587m and how the firm’s finances were allowed to deteriorate so rapidly.

A spokesman for the LGA urged councils facing new charges to make a “pacy transition to new arrangements” as ministers had confirmed the extra charges would be 20% and could climb higher.

“Some councils have raised concerns about being charged substantial increases in contract fees by the Official Receiver,” he said.

“We raised this issue with central government who have advised that all customers will be required to pay more than the contract price with Carillion to reflect the direct cost for ongoing provision of service including support functions. This additional cost is estimated to be around 20% although it is likely to increase as contracts are re-let or taken in house.

“We have advised councils that a pacy transition to new arrangements is likely to be the best way to minimise exposure to escalating costs.”

It comes as the Official Receiver announced a further 452 jobs will be lost – bringing the grim total to 829 – in the wake of the firm’s collapse in January. …

“It’s not just the fact so many are being made redundant – it’s the callous way PWC are going about it which is so outrageous.

“Some people received emails on Saturday simply telling them not to bother turning up for work on Monday.

“Others have been given less than a day’s notice.

“And the ones that still have a job are in limbo – like some horrific zero hours contract they turn up to work each day not knowing if they’ll still have a job at the end of the day.

“Both the Receiver and PWC must follow proper procedure and consult over redundancies.” The Official Receiver insisted it began consulting with employers as soon as the company went into liquidation.

A spokesman for the Official Receiver said: “In his role as liquidator of Carillion, the Official Receiver is independent of government. “He is required to ensure the costs of providing ongoing services for Carillion’s customers are covered during this interim period before contracts are sold or transferred to new providers.

“The amounts being charged for ongoing provision of services are being forecast on a regular basis. “Where customers can show that the uplift being charged is wholly unrepresentative of the current cost, the Special Manager will review those charges to ensure that an appropriate amount is charged. This is already occurring in some cases.”

A Government spokesman said: “Government is providing funding for the official receiver to minimise the impact on public services. “The collapse of the company does not threaten the viability of councils who held contracts with Carillion, and we are monitoring the situation closely to ensure this remains the case.”

Business Secretary Greg Clark has previously called for the Insolvency Service’s investigation into Carillion’s collapse to be fast-tracked. “

One thought on “Carillion liquidators demand local authorities pay 20% and maybe up to 70% extra for company’s contracts

  1. I don’t know why this is a shock to people. Carillion failed because it tendered its contracts too cheaply to cover costs. The administrators have to cover the costs to operate the services moving forward so it is inevitable that they will rise.

    What is shocking to me about this Huffington Post article is that it describes the Directors claim that part of the reason for the insolvency was that new contracts were delayed. If you are company that is running contracts at a loss because you low-bid for them, absolutely the last thing you need are more contracts that will be loss makers. If they planned to stay solvent using up front payments from new low-bid contracts, then it has the appearance of a Ponzi scheme.

    In the mean time, they continued to pay themselves large salaries and bonuses and even increased the dividend to shareholders in order to give the appearance of a company that was solvent – which is certainly less than honest and certainly immoral if not necessarily illegal – whilst allowing the company pension plan deficit to balloon (whilst probably ensuring that this didn’t affect them by having alternative arrangements for senior executives – like personal pension plans).

    The real shocking story is that the current government let them get away with it – not only because of lack of sound vetting for their own contracts, but also by failing to legislate to force companies to prioritise pension deficits over dividends and executive bonuses.

    How many more such scandals are there waiting in the wings to shock us?


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