Carillion: taxpayer £200 million bill – government contracts placed after warnings

“The collapse of Carillion will cost taxpayers more than £200 million, according to a report.

The National Audit Office (NAO) said that ministers had failed to monitor the government’s sixth largest contractor effectively before it went into liquidation with debts of £1.5 billion.

The spending watchdog questioned why the construction company was given public work, including a £1.3 billion contract to help to build HS2, after a profit warning last July. The company had 420 public-sector contracts worth £1.7 billion a year. The scale of its profit warning was a “surprise” to the government, the NAO said.

“Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened,” said Sir Amyas Morse, head of the NAO. “Government has further to go in developing in this direction.”

The cost to the taxpayer on the losses on Carillion’s contracts since it was put into the hands of the Official Receiver in January is £148 million, the NAO report found. On top of that is an expected bill from PWC of £50 million for handling the first six months of the receivership. That bill is expected to rise as the liquidation process continues.

Frank Field, the Labour MP who leads a House of Commons committee that has issued a report on Carillion and the failings of its directors, said that the NAO report showed how the Cabinet Office had fallen short.

“Carillion hoodwinked the government as they did many others who were so naive as to trust their published accounts,” he said. “At the earlier stages government oversight was inadequate. The government has to up its game.”

The report says that the Cabinet Office employed no direct overseer of Carillion in the three months after the profit warning after the departure from the civil service of the “crown representative” that each major contractor is assigned by government.

Despite the evidence that Carillion was in a crisis from which it might not recover the company was not assigned to the Cabinet Office’s “high risk” red alert until September and contingency plans for Carillion’s failure were not stepped up until October. Even when the company went into liquidation in January, the Cabinet Office still did not have a complete list of the government’s exposure to Carillion and did not have contingency planning in place.

A spokesman for the Cabinet Office said: “Throughout this process the government has been clear that its priority is to ensure that public services continue to run smoothly and safely. The plans we put in place have ensured this, and we continue to work hard to minimise the impacts of the insolvency, having safeguarded over 11,700 jobs to date.”

Insolvency Service reports show that 2,332 Carillion staff have lost their jobs.”

Source: Times (pay wall)

3 thoughts on “Carillion: taxpayer £200 million bill – government contracts placed after warnings

  1. The Government continuing to award contracts was stupid but just made the bail out a bit larger. The real blame is with the directors who continued to take home large salaries and bonuses and pay dividends to shareholders whilst defrauding those shareholders and the Government.

    The Government should pass legislation to claw back the £200m from directors and shareholders who did not deserve the bonuses and dividends that were paid when the company was in financial difficulties.

    And we can only hope that the directors will be held accountable not only by claw back of salaries and bonuses but also by criminal prosecution for fraud.

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    • The other way to claw back some of the £200m is to fine the auditors a large sum for failing in their duty to shareholders by checking that the accounts were a realistic representation of the companies finances. Not only would that absolve the taxpayer of the costs of the failure, but it would send a string signal to the auditing industry to up their game or face the consequences.

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    • The £200m does not include the £1.8BN losses incurred by sub-contractors. It seems to me to be quite clear that Carillion was trading insolvently, and in that event Directors can be held personally liable. So it would be great if the directors were forced to pay some of these debts too – to the very limit of their financial ability.

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