Carillion wanted another £125m to complete Midland Met Hospital, report reveals

It would have added more than a third to the £350 million price tag Carillion was already due to receive for building the Smethwick super-hospital.

But the Government turned down Carillion's appeals and Wolverhampton-based construction and services giant was forced into compulsory liquidation.

A new report on how the Government reacted to the crisis at Carillion reveals that the liquidation is expected to cost more than £500 million.

Income from former Carillion contracts will cover some of that, but the net cost will be around £150 million, says the National Audit Office report today. And it warns that the total eventual cost is still not known.

Warley MP John Spellar, who's constituency includes the Midland Met, said: "This is a shocking saga of corporate greed and incompetence, where shameful management has destroyed a once great Midlands company.

"Furthermore, the Government appears to have been asleep at the wheel without a grip on a growing crisis or able to meet their own responsibilities for resolving it."

He said the problems at the Midland Met Hospital had centred on a mechanical & electrical contract, for the heating and ventilation system, which had been installed late and hadn't worked, leading to a major refit.

Today's report also reveals that tax-payers will have to pick up the bill for a £2.6 billion pensions black hole.

That is the size of the liabilities from a string of pension funds across the Carillion group, which will now have to go into the Pension Protection Fund – the Government's so-called pensions lifeboat. It means former Carillion workers will only receive 90 per cent of the pensions they would have been expecting.

The Audit Office report also details the contingency planning ordered by the Government last summer once it realised the scale of the problems at Carillion, after the group admitted to £845m of losses on construction projects including the Midland Met.

Carillion had 420 public sector contracts, and the cost to contingency plans for Government departments and bodies like Highways England and Network Rail was estimated at more than £230 million.

The report also reveals that the Government held back from naming Carillion as a 'black' high-risk supplier in December. The Cabinet Office "accepted that the rating would unnerve Carillion’s lenders at an important point in the restructuring process and could precipitate financial collapse."

But Carillion's banks and lenders were not prepared to support the company's bail-out plan, partly because "there were significant doubts about Carillion’s true past trading position and cash generation, because of Carillion’s focus on enhancing the reported level of profitability and net debt."

They insisted the Government must take a share of providing support for Carillion, and company bosses asked for £160 million as well as asking the Cabinet Office for up to £125m to help fund completion of the Midland Met in exchange for an equity stake.

The Government refused, propelling Carillion into liquidation. Since then more than 2,300 people have lost their jobs, although 11,700 have found work with new contractors taking over jobs from Carillion. The jobs of another 3,000, including 160 at the company's headquarters in Wolverhampton, remain in the balance.

The final contracts are expected to be handed to new companies by the end of August.

Meg Hillier MP, chair of the Committee of Public Accounts (PAC), said: “Today’s investigation throws up a number of issues which PAC will explore further as part of our strategic supplier inquiry later this month.

“The collapse is expected to cost the taxpayer more than £148 million and the effect on supply chain businesses and Carillion staff underlines the human impact of such a collapse.”

Amyas Morse, the head of the NAO, added: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts.

"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. Government has further to go in developing in this direction.”

One area of controversy has been the awarding of £1.9 billion of new government work in the months after Carillion's first profit warning, including £1.3bn of HS2 contracts. But the report says none of the authorities award the contracts believed they had grounds to disqualify Carillion under procurement rules. Also, its joint venture partners were legally bound to take over Carillion's share of the work if the company failed.

Meanwhile work on the Midland Metropolitan Hospital remains at a standstill, with fears growing for the deteriorating state of the two-thirds complete building. Health authority bosses have already admitted it will be 2022 at least before the hospital can open, but efforts to appoint a new building contractor have currently stalled.