Carillion: A crisis not to be wasted

The collapse of the UK’s second-biggest contractor has sent shockwaves through our industry.  It is a scandal which leaves up to 30,000 suppliers and 43,000 people with an uncertain future, including hundreds of young apprentices and graduates making their first career steps.  It is a hammer blow for the industry’s image, toughening the challenge of attracting the next generation.  The speed of Carillion’s demise during the past 6 months has been astonishing, from the £845m write-down of its contracts to the spiralling of its debt.  Its suppliers may lose a staggering £2.2bn owed to them.

For many young professionals in the built environment, this is the biggest business shock of our careers.  And during a time of relative economic stability.  So why did Carillion’s management fail to avert this disaster?  How could they have been this careless?  Was there malpractice or even misconduct?  This will come out in time, but we should also look at the bigger picture.

Almost a decade on from Never Waste a Good Crisis, published by Constructing Excellence in 2009, there couldn’t be a more apt time to reopen the report.  Redefining value, abandoning short-termism, professionalising procurement, incentivising innovation – these were the themes which, nine years on, frustratingly remain a challenge for our industry.

Commentators have been quick to conclude that Carillion represents a symptom of a broken industry business model, a ‘survivalist model’ first explored in the 2016 report Modernise or Die.  Under-bidding, adversarial behaviour, unmanageable risk, rock-bottom profitability and late payment all remain pervasive problems.  Perhaps Carillion was an accident waiting to happen.

G4C believes we must urgently seize the opportunity to turn this sorry episode into positive change.  In the post-mortem which follows there will be discussions on ‘lessons learned’ – but to deliver the widespread, long lasting change we wish to see we need to apply those lessons, incentivise them; even enforce them where necessary.

Carillion must be the spark to ignite change.  We have to think more intelligently and creatively about how we procure, structure and manage projects in the built environment, how we collaborate and motivate, balance risk and reward.  We must fight back to improve our image, share more of the great work we do and build an engaging narrative with the public.  We must end the menace of protracted and late payment; abolish retentions.  The Government should mandate and monitor transparent payment systems, 30-day payment terms right down the supply chain, and consider Project Bank Accounts as the default option.

There is plenty of encouraging activity going on across our industry to look at models which will produce more inclusive, outcome-focussed, longer-term and mutually beneficial relationships between client and supply chain.  The younger generation is keen to support these, see them piloted, proved and adopted more widely.  Our ability to deliver the future built environment, and everything this enables society to achieve, depends on getting this right.

Author: G4C