Carrilion in trouble

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Sa Calobra said:

£1billion in debt to the banks.
£29million left in the coffers.

The media seem to care about why didn't the government save the company.

All I care about is when will the Directors and board be held to account and charges brought.

Additionally I add that ‘what the hell were the pay board looking at when they made such pay packages’? And what were the major investors looking at when they nodded it all through? All are responsible and should be held to account. It’s one thing to be smart and make lots of money, but to do that and bring total failure deserves some form of penalty.

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tleefox said:

The thing I find most surprising about the Carillion situation, is that people are surprised. It would be interesting for someone to do an analysis, say of the top 10 main contractors in the UK to see how many of them are in a similar financial position to where Carillion were a couple of years ago.

Construction exists on tiny margins, high turnover so it only takes a couple of "problem" jobs before it all starts to come crashing down. Couple that with a shocking level of "skills" in the industry at all levels including managerial (as others have alluded to - how the eff do you get cracks through the concrete frame structure of a new job) and you have the perfect storm.

In the carillion case the share price was tumbling for some time, over one year, be interesting to discover how much money the major investors have lost on this one.

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poo at Paul's said:

frankenstein12 said:

BAM225 said:

Burwood said:

I recall a thread a year or so ago about the military and the money they spend. Someone on here worked for a supplier to the MOD. They quoted stupid pricing such as £15 for a £3 packet of panadol

Another one is lightbulbs at £20a unit which were £1.25 for the supplier to buy.

Since I work in this arena a little clarification maybe....

So as an example I saw a tweet from a doctor earlier toay about the fact it was costing £75 for a lighbulb to be changed which to common sense and common layman seems insane however its a matter of viability.

For a silly simplistic example you could hire someone at say £75 a day all year round to change light bulbs however they may only have to change a light bulb once a week so you are paying them £75 every other day for nothing.

If you could pay a contracting company £75 every few days for changing the light bulb instead which will clearly be cheaper.

It of course changes if it turns out the person hired full time just to change lightbulbs has to change 2 light bulbs every day of the year because then its clearly cheaper to have him full time as you are only paying him £75 a day where you would be paying the contractor £150 a day.

Or maybe you hire him all year and get him to do other stuff than just change light bulbs, eg, clean the stters.

Crazy idea, but it may just work.

The division of labour and roles in the PS has lead to "not my job mate" mentality for years, that has resulted in it being outsourced on this nonsensical level.

This is precisely what happened to our lad, for a stop gap job he worked as an electrical engineer on a service contract run by carillion in a hospital. His line manager asked him to clear a blocked bog, lad protested that after years of study he was not prepared to carry out that task. If you don’t like it you know what to do then came the reply, fine our lad walked off the job never to return.
At some point some professional achievements deserve a little bit of respect. If the problem had been approached in a different manner things may have had a different outcome.
As it is our lad now holds a fantastic job and has never been happier or more fulfilled in his professional life.

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^^^^^
I notice you left out the part of your post which contradicts my ‘chickens coming home to roost’. As much to say that I was wrong to start a thread regarding the business, own up, you gave me a small mouthful and you are wrong.
Also good for you to stand by your opinion regarding low balling on tenders. Obviously you have no idea about this Company and the damage sustained by its management model.
Do you really want a bigger shovel?

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V8 Fettler said:

Countdown said:

V8 Fettler said:

Does no-one on the client's team read and understand the proposed contract before the contract award stage? For contracts of a larger value, does not the client write the contract?

Lots of different reasons/issues.

In some cases the contracts are read by Civil Servants who weren't necessarily property or FM experts. In many other cases the services provided by the in-house staff wasn't fully identified or appreciated so, for example, Geoff the caretaker might do what was in his Job Description but over the last 30 years he's informally taken on a wide range of other jobs which nobody identified when the contract was being written. Or assumed it was covered under "General maintenance". Then there was the "one size fits all" approach where the contract might be appropriate for a City centre Hospital but not necessarily for a village clinic.

And all of the above is before you take into account the fact that the Outsourcer will use the cheapest staff, minimum headcount to provide as little of the contracted service as possible. Some of the subcontractors they sent us would be excellent and would be shocked at how much we were paying the Putsourcer compared with what the Outsourcer was paying them. And gradually none of the decent subbies would work for them which meant they would subcontract to "Gibbering Buffoon & Son" which then introduced another layer of fraud and incompetence into the mix.

These people shouldn't be involved in the procurement process.

Then who should?

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iphonedyou said:

crankedup said:

^^^^^
I notice you left out the part of your post which contradicts my ‘chickens coming home to roost’. As much to say that I was wrong to start a thread regarding the business, own up, you gave me a small mouthful and you are wrong.
Also good for you to stand by your opinion regarding low balling on tenders. Obviously you have no idea about this Company and the damage sustained by its management model.
Do you really want a bigger shovel?

I genuinely - really, genuinely - haven't a scooby what you're on about.

Enjoy your evening, and keep your shovel. You'll likely need it if you reply.

It’s patently obvious you don’t have a clue. Top marks for being the only person on the thread and elsewhere outside of this forum to have sympathy for carillion’s low balling. When I. entioned the chickens coming home to roost for them you seem to take the opposite pov denigrating my comments. You were and still are patently wrong in your assertions but perfectly at liberty of course to maintain your position. However, some justifications for your position would be interesting.

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Sa Calobra said:

matchmaker said:

My experience, in the Civil Service, was of a member of staff who was so monumentally useless that he was promoted, as there was no other way to get him out of the office and into a different one. Regrettably, I was amongst the staff who had to put up with the fat, useless waste of space in his new promoted position. He was also my line manager, unfortunately. Nicknamed FLUB - Fat, Lazy, Useless bd.

Probably also approving contracts too.

Blame the ststorm on whoever you care to pick then! Point is that carillion were a sthole of a company that shafted thousands of good SME and individuals whilst lining thier own pockets.

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Dr Jekyll said:

crankedup said:

Blame the ststorm on whoever you care to pick then! Point is that carillion were a sthole of a company that shafted thousands of good SME and individuals whilst lining thier own pockets.

Typical capitalist plot, lining their pockets by making such small margins they went bust.

Problem I aand many others have with this particular Company was the low cost approach, fair enough, but then screw over all of the stubbiest for every single penny possible in every conceivable method. You obviously were not one of the subbies who got screwed or knew any, in a personal sense, who were victims.
That is not how Capitalism should be working.

Edited by crankedup on Saturday 20th January 10:27

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Dr Jekyll said:

popeyewhite said:

Lining their pockets and those of the shareholders while getting deeper into debt and not paying their bills. You think that's capitalism?

The shareholders lost out when the firm went bust, that's exactly how it's supposed to work.

Suppose it had been state owned, what would have been different?
Higher profit margins to give themselves a buffer?
Or would the govt have been obliged to bail them out?

But it’s not how it’s supposed to work at all!
Major shareholders are investigating as to exactly what has gone wrong, what on earth were the senior management and directors doing with this company, mismanaging seems to be the blunt answer. On top of that they were drawing down huge salaries and bonuses, and paying shareholder dividends when the business was in trouble. Another large question mark.
The shareholders are reliant upon Carillion returning reasonable profits, as soon as those profits look poor the shareholders should have been investigating, perhaps they were.
The pension fund is now thought to be a 2.5 billion black hole. How bad can it get? well 30,000 SME are at risk, pension fund massive black hole, Government left looking like a bunch of cretins, and the CEO and directors of Carillion laughing all the way to the bank.
Definitely not supposed to work like this.

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WatchfulEye said:

turbomoped said:

Im curious about the share holders and wonder if it hadn't all slowly been shifted over to the clueless investors.
Im sure some thorough investigation will figure that one out

Already some people suggesting exactly that:
https://www.ft.com/content/31c85276-fae0-11e7-9b32...

Carillion had been one of the most heavily short-sold stocks for a while before the recent collapse. Roughly 20% of all shares had been sold short since 2016, with the short interest going even higher in early 2017. It had been the big investment firms, like Blackrock (who offer absolute return funds) and a litany of hedge funds who had been leading this call, suggesting that the big players knew damn well that the company was being unsustainably managed.

The implication is that it was unsophisticated investors who would lose out: tracker funds, dividend funds, etc. and poorly informed retail investors.

Here's a representative article from last year:
https://www.fool.co.uk/investing/2017/03/17/3-ftse...

At the time this was written, short interest was reaching new highs of approx 25% of all shares. Yet here we have an article written for amateurs which is not too far off saying that this is a one-way bet.

Apparently Blackrock and Axa are two of the investors investigating the issues.

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wc98 said:

crankedup said:

Definitely not supposed to work like this.

looking at relatively recent history (decades) of how big business operates in the uk i would say that is exactly how it is supposed to work . a small pool of leeches moving around various companies drawing down huge salaries and bonuses instead of ploughing profits into building cash reserves, pension funds, investment and training. i may be a bit cynical about this, but that is how it looks to me.

Agreed, I wouldn’t call it being cynical particularly. Seems that oversight was simply not professional or effective in this case. Personally I say good riddance to carillion.

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Dr Jekyll said:

BrabusMog said:

I'm going to sound like a borderline communist no doubt, but if the company isn't performing well then it shouldn't be paying out bonuses. I get a "discretionary" bonus linked to my performance, but if the company was struggling I have no doubt I wouldn't receive it. Businesses like Carrilion give the Left a justification for their idiotic wishes in my opinion.

The whole point of an individual performance related bonus is to improve individual performance, if the company isn't doing well you need individual performance more than ever.

That’s works on a shop floor perhaps, however when it’s a Board of Directors of a large public company it’s a different game altogether. These people are supposed to be at the top of thier game, each reporting at the Board meeting to the, well Board.

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How can a well performing healthy Company paying dividends and bonuses one year be on the brink of disaster 12 months later? OK as others have pointed out the construction industry is one of very low margins, but this is why Boards are in place to identify the risks and rewards. This Company was clearly so over leveredged that the knife edge was in place for long enough for the Board to take appropriate actions, it clearly failed to do so.
The investigations into exactly were the elements that brought the business down will provide interesting reading. Another case of to big to fail perhaps, but inevitability took hold.

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ClaphamGT3 said:

crankedup said:

How can a well performing healthy Company paying dividends and bonuses one year be on the brink of disaster 12 months later? OK as others have pointed out the construction industry is one of very low margins, but this is why Boards are in place to identify the risks and rewards. This Company was clearly so over leveredged that the knife edge was in place for long enough for the Board to take appropriate actions, it clearly failed to do so.
The investigations into exactly were the elements that brought the business down will provide interesting reading. Another case of to big to fail perhaps, but inevitability took hold.

That post shows that you don't understand the nature of a contracting business.

Any large contractor will be on a conveyor belt of tendering, winning and delivering major contracts. It only takes an error on risk allocation/pricing on a few of those to adversely impact the whole business. Fifteen or so years ago, for example, Laing - one of the biggest and best regarded contracting businesses in the U.K., failed because of losses on the millennium stadium in Cardiff.

Contracting margins have become so slim (because everyone wants 'cheap') that contractors simply don't have the balance sheet strength to withstand even one toxic project, much less the two or three that Carillion had.

I suspect that, in a few years, there will be about half a dozen 'large' building and civil engineering contractors globally. These will have the balance sheet strength to take on major projects through diversified trading activity in other, higher margin sectors. Many of the current national players will either go to the wall, be subsumed into the global players or diversify into housebuilding/commercial development/investment portfolio management etc

It’s true that tender contracting large scale is not / was not my professional area. Your saying that the margins are so slim, I did elude to that, that the balance sheet is not strong enough to withstand a bad contract, easy enough to understand and one that is recognised by just about all of us.
What I do not understand, and you do not elude to and it is the critical question in this mess, what were the company directors thinking and doing taking on huge contracts when the business clearly could not service its existing debts? Small margins do not create a 2 billion debt book overnight, not a 2 billion hole in the pensions fund. the directors low balling appears to be simply gambling that work would come good. Why did the directors shaft the SME businesses by extending thier own terms of payment.
Not familiar with the Laing failure, did they fail in with such a massive debt pile, did that have such an e tended time frame to put the company back on track, failure due to one contract suggests not.
I understand the tendering processes and the result of errors in the tender price, however it is clear that this is not the situation which brought down carillion. Too much debt without decent asset value is a classic shell company failure.

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2 sMoKiN bArReLs said:

crankedup said:

How can a well performing healthy Company paying dividends and bonuses one year be on the brink of disaster 12 months later?

You've obviously never worked in the construction industry. You estimate profits on long term contacts as you go along. The truth though is that you don't know the real score until you get towards the end.

Get your forecasts wrong and a catastrophe can appear virtually overnight.

This is perfectly true and reasonable, I. ever worked in construction. You are saying that a wrong forecast on profits caused the demise of carillion THat is hard to believe but the truth has to come out in the investigations. This company were low balling hiring subbies and hammering them on price to the extent many went to the wall. I find it impossible to believe. ompany can roll up debts to the extent that carillion demonstrated and still be regarded as a company that made a few errors in its tendering processes If it is true the whole system requires a complete top to bottom overhaul so far as the public services are concerned.

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ClaphamGT3 said:

crankedup said:

It’s true that tender contracting large scale is not / was not my professional area. Your saying that the margins are so slim, I did elude to that, that the balance sheet is not strong enough to withstand a bad contract, easy enough to understand and one that is recognised by just about all of us.
What I do not understand, and you do not elude to and it is the critical question in this mess, what were the company directors thinking and doing taking on huge contracts when the business clearly could not service its existing debts? Small margins do not create a 2 billion debt book overnight, not a 2 billion hole in the pensions fund. the directors low balling appears to be simply gambling that work would come good. Why did the directors shaft the SME businesses by extending thier own terms of payment.
Not familiar with the Laing failure, did they fail in with such a massive debt pile, did that have such an e tended time frame to put the company back on track, failure due to one contract suggests not.
I understand the tendering processes and the result of errors in the tender price, however it is clear that this is not the situation which brought down carillion. Too much debt without decent asset value is a classic shell company failure.

At a share price of £3.50/£4 per share, Carillion wasn't massively over-geared by the standards of the industry.

The directors weren't 'low balling' they were pricing at the levels necessary to win contracts. They didn't 'shaft' SMEs any more than other tier 1 contractors; cash flow management is critical in contracting - it may not be nice or moral but it is the way it is.

What does appear to be inept on the part of the Carillion board was to handle the announcement of performance issues in a very cack-handed way, which in turn caused the share price collapse that decimated their market cap and breached their banking covenants

I can’t accept that at all. even though I have never been in the construction industry. If that is the recognised methods of normal management then we are doomed.

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GT03ROB said:

BrabusMog said:

ClaphamGT3 said:

The directors weren't 'low balling' they were pricing at the levels necessary to win contracts. They didn't 'shaft' SMEs any more than other tier 1 contractors; cash flow management is critical in contracting - it may not be nice or moral but it is the way it is.

I'm sorry, but this is utter bks. Construction seems like an absolute shambles if intelligent people deem this worthy business practice. We're worried about "the race to the bottom" in my industry, looks like construction is in the middle of a triathlon...

Clapham does at least understand the contracting game based on his posts. Contracting is a cock fight on the best of days. It always has been & always will be.

I've worked for the best in the business & still walked onto projects, identifying unrealised exposures in 100s of millions.

Construction is not manufacturing or consultancy or designing duff software. It's low margin high
risk. It's not easy.

When the CEO of one of the biggest & best performing global companies tells you he'd sell up & put the money in the bank if it was't for his family name being on the company you know it's tough.

None of which explains the enormous debt pile and huge pensions deficiet. It’s not easy so perhaps the wrong people were at the helm, in fact that seems obvious now. Next one to go looks like it could be interserve, will they be dragging thousands of good businesses down as well, I suspect so. These directors are paid very handsomely for expertise which seems sadly inadequate for the task at hand. Not so bad when it’s only carillion to go. use but dragging thousands of people and god knows how many sub contractor companies. awful company like the other types of service companies, for example G4.

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Rovinghawk said:

ClaphamGT3 said:

At a share price of £3.50/£4 per share, Carillion wasn't massively over-geared by the standards of the industry.

2007-2011 the share price yoyoed; I bought in several times at low-mid 200s & sold later when it hit mid-high 300s, managing a house deposit from the proceeds.

Considering the company founded very recently you did well. 1999 to bust with all the outfall.If this is how to run a Company we are royally fked.

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2 sMoKiN bArReLs said:

crankedup said:

2 sMoKiN bArReLs said:

crankedup said:

How can a well performing healthy Company paying dividends and bonuses one year be on the brink of disaster 12 months later?

You've obviously never worked in the construction industry. You estimate profits on long term contacts as you go along. The truth though is that you don't know the real score until you get towards the end.

Get your forecasts wrong and a catastrophe can appear virtually overnight.

This is perfectly true and reasonable, I. ever worked in construction. You are saying that a wrong forecast on profits caused the demise of carillion THat is hard to believe but the truth has to come out in the investigations. This company were low balling hiring subbies and hammering them on price to the extent many went to the wall. I find it impossible to believe. ompany can roll up debts to the extent that carillion demonstrated and still be regarded as a company that made a few errors in its tendering processes If it is true the whole system requires a complete top to bottom overhaul so far as the public services are concerned.

Nope. That's not what I'm saying. Read your own question...that what I was answering. I have no idea about Carillion's problems.

I was referring to carillion, that is the thread subject.

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GT03ROB said:

crankedup said:

None of which explains the enormous debt pile and huge pensions deficiet. It’s not easy so perhaps the wrong people were at the helm, in fact that seems obvious now. Next one to go looks like it could be interserve, will they be dragging thousands of good businesses down as well, I suspect so. These directors are paid very handsomely for expertise which seems sadly inadequate for the task at hand. Not so bad when it’s only carillion to go. use but dragging thousands of people and god knows how many sub contractor companies. awful company like the other types of service companies, for example G4.

I don;t disagree....see my previous post.

But it does remain very easy even with the best controls in the business to walk into a fked up contract. Without the capital base 1 screw up will take a contractor down. And I'm not saying this is the case for Carillon.

History is littered with contractors with decades of good performance who made one mistake & disappeared

Edited by GT03ROB on Sunday 21st January 17:09

Edited by GT03ROB on Sunday 21st January 17:10

I couldn’t care less about carillion tbh, I simply and sincerely hope that our Government learns from this disaster, but somehow I doubt it very much.