Carillion collapse: Midland Met Hospital deal helped bring Wolverhampton construction giant down
Mounting debt and a ‘handful’ of loss-making building contracts put paid to Carillion, bosses have told MPs.
For the first time chiefs and former directors confirmed that the delayed £350 million Midland Metropolitan Hospital at Smethwick was one of the loss-making contracts that brought down the Wolverhampton-based construction and services giant.
And they admitted they should have done more to cut Carillion’s debt mountain, which left them no ‘wiggle’ room when contracts went wrong.
Richard Howson, chief executive until the company admitted it faced £845m losses on building work last summer, said of the Midland Met: “The building services design was delivered six months late and then didn’t work, adding to the cost.”
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At the same time cracked concrete beams had to be replaced at the Royal Liverpool Hospital development. Mr Howson also said, ‘with hindsight’ he would never have bid for work on the Aberdeen bypass, because of the losses it led to.
The company also had problems with two railway station projects in Canada and its only contract in Qatar, the Msheireb development. Mr Howson said a bill from Qatar for £200m remained unpaid after 18 months, while work originally due to complete in 2014 was now not due to finish until December this year.
But members of the joint Business and Pensions Committees of MPs probing the collapse of Carillion pressed the firm on its soaring pension deficit – now thought to be around £600m – and the decision to keep paying ever higher dividends to shareholders.
But Keith Cochrane, who took over from Mr Howson, said cancelling the £50m dividend payment in 2017 would not have had a significant impact on the company’s finances.
“I don’t think you can say definitively that it would have changed the outlook, but could it have helped? Possibly – I think I would have to recognise that. Did it fundamentally change the position of the pension fund? I don’t believe so.”
Carillion’s schemes are being transferred to the public Pension Protection Fund (PPF), which means eligible staff are likely to receive just a portion of their promised pensions.
Mounting debt
Mr Cochrane added: “Clearly the business did have issues – undoubtedly. And clearly, do I wish we had done something about it sooner? Absolutely. I recognise that.
“I can assure you that all the decisions I took in seeking to do the best thing for the business at that juncture.”
Former finance chief Zafar Khan said that Carillion was grappling with mounting debt, significantly underperforming contracts and tough construction markets in the UK.
He said: “No, I don’t believe I was asleep at the wheel because as soon as I came into the role, we were looking to tackle the issues and the key focus of my time in the role was to bring net debt down.”
He added: “I believe I did everything that I could have done, essentially.”
When pushed by MPs at the inquiry hearing yesterday, he added that he did not expect the company to collapse.
“I was surprised at the outcome that eventually came to pass,” Mr Khan said.
