Carillion’s demise raises concerns about Government’s reliance on large contractors, says FMB

The Government must learn from Carillion’s demise and assess its over-reliance on major contractors, according to the Federation of Master Builders (FMB).
Commenting on this morning’s announcement that Carillion is to enter compulsory liquidation, Brian Berry, Chief Executive of the FMB, said: “Carillion’s liquidation is terrible news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion’s demise.”
Berry concluded:
“Carillion’s liquidation raises serious questions for the Government, not least about its over-reliance on major contractors. The Government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots. That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies. Construction SMEs train two-thirds of all apprentices and are a sure-fire way of spreading economic growth more evenly throughout the UK.”

Mathew Riley, MD at Ramboll and Chair of Association for Consultancy and Engineering (ACE)

“If ever we needed more evidence and examples of the need for industry reform, this is it! Carillion are a good company with a long heritage but are the victim of an industry business model that doesn’t work. It was an accident waiting to happen.

 Public sector procurement is part of the problem and the way they have sought to manage, share and transfer risk through the supply chain. For an industry that operates on wafer thin margins, to take on more risk, particularly for high value contracts, was always a dangerous strategy. We need a more sustainable business model moving forward and the government need to play a more active role in helping the industry to perform.

 The construction industry is facing a lot of converging forces; the need for increased productivity, the uncertainty from Brexit, the opportunities around disruptive technologies, tackling the skills shortage – and now, the realisation of a broken business model. The failure of Carillion is a very sad day that brings uncertainty to a lot of people. The industry should look at this as impetus to drive positive change, and firms like Rambolland organisations like ACE will be there to play their part in ensuring our industry is fit for the future.”

Construction leaders believe that it will be the smaller firms that will pay the price for Carillion’s collapse. Steve Mansour, CEO of building warranty specialists, CRL commented:

“It is incredibly sad that Carillion has gone into liquidation, especially for the workers now faced with uncertainty. The clear message to Government, however, is that it must move away from over-reliance on huge corporations, and cut the red tape and bureaucracy that smaller firms face on a daily basis. This presents a huge opportunity for bold and venturous SME developers and builders: not only will they continue to be the backbone of the industry, but we are expecting them to step up with agility, creativity, and new techniques.

“It is imperative that the Government encourages entrepreneurialism and further innovation in the construction industry, and works toward spreading economic growth more evenly throughout the UK. This will spur confidence which has been desperately lacking – and will help build a better Britain.”