The head of Health at a leading project and cost management consultancy offers his standpoint on some of the reasons for Carillion’s recent collapse, and the potential wider implications for healthcare construction and construction procurement.
Carillion’s entering into liquidation in January may not have entirely surprised analysts, but it nonetheless highlighted the precarious position of large contractors strongly reliant on public sector contracts at a time when government construction procurers have been demanding ever lower prices. HEJ editor, Jonathan Baillie, recently met with Conor Ellis, head of Health and Partner at Rider Levett Bucknall, a cost management and quantity surveying, project management, and advisory services specialist, to discuss some of the factors behind Carillion’s collapse, and the implications for the healthcare building and wider construction markets.
Meeting Conor Ellis at RLB’s London offices, I began by asking him about the immediate aftermath of Carillion’s demise, and how he believed it left two of the major hospitals the contractor was building – the Midland Metropolitan in Smethwick and the new Royal Liverpool University Hospital, as well as the many other construction projects with which it was involved. He said: “The SPV, PwC as receivers, and the insurers, will have to come to a view as to how they get contractors back in to start working on those projects. There will have to be a process undertaken by the SPV in terms of the step-in rights, which I would expect to be defined over the next few weeks, with ongoing discussion to agree a new contract and bring in another construction company to complete the projects. What’s fascinating about all this is that Cabinet papers published as far back ago as 2012 included calls for project bank accounts to protect sub-contractors against major contractors. A number of large highway and defence infrastructure projects have such accounts in place to safeguard SMEs’ interests and ensure that sub-contractors aren’t left high and dry. With the recent Carillion liquidation there will be growing calls for these, particularly with the recent horror stories about small to medium-sized companies having to lay off staff, and being left with debts of £800,000 and beyond.”
Project-specific bank accounts
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