CARILLION’S BUSINESS HAD GROWN ‘TOO DIVERSE’
Dave Wilson, non-executive director with Morphose, said that it was “obvious for some time” that Carillion’s business had become “too diverse”.
“The FM part in particular was not core to their main construction offer, but was, in my opinion, a sound operation with good people and systems.
“It is possible – but I have no direct knowledge of this – that bidding has been too aggressive. I think that is a problem which is quite widespread in the industry as businesses chase sales and market share in a relatively stagnant market.
“From an FM perspective, this is symptomatic of a problem with the tendering process, especially in the public sector, which still gives too much weight to price and not enough to quality or business sustainability.
“I would be surprised if there weren’t potential buyers for the FM business which, the last time I looked, was well run and had good products and service in some market niches. There are some fairly obvious potential buyers for a business with a strong technology sector record and some interesting public sector contracts. Might a management buyout of the FM business, as a whole or in parts, be viable?”
Joanna Lloyd-Davies, principal at JLD Consultants Limited, called the situation “horrendous” and “a great shame”.
She told FM World: “It must have been a very difficult time for those in charge to pull the plug.”
“We’ve got to look after the people, we have got to protect the reputation of the industry and we have got to hope to God that this doesn’t happen again.”
Lloyd-Davies worked in business development at Tarmac, which rebranded as Carillion in 1999 to place greater emphasis on its services provision. She recounted: “We started all the hospital PFI contracts. We were doing great things that would be good for the UK’s healthcare.”
“We have to show the world that one company has gone down, but this isn’t the state of all companies in the industry.
She said: “The main lessons we should learn are corporate responsibility, delivering according to the agreed contract and properly bidding on contracts.”
She added: “It’s going to make everyone wiser and more alert. We have to make sure we are running sensible businesses and delivering appropriately.”
Consultant Martin Pickard focused his attention on the likely impact of Carillion’s crash on its many sub-contractors, in particular the issue of suppliers forced onto more onerous payment terms last year.
“Government should learn to utilise all of the facilities management supply chain and not give all its work to a chosen few,” said Pickard. “Also, companies should finally learn that aggressive accounting and commercial practises will kick you in the butt eventually. Forcing your sub-contractors onto 120 day terms only provides a short-term fix to your cash problems but guarantees resentment and non-cooperation.”
Pickard also emphasised the problem of organisations too often letting their FM contracts drift ‘out of mind’.“
“Clients – including governments – must learn that outsourcing doesn’t transfer all risks, and both parties need to play an active role in facilities service management.”
Jeremy Waud, chairman of Incentive FM Group, called Carillion’s collapse a “sorry but rather predictable tale and a lesson to many of us”.
“Ultimately, its collection of banks did not have the courage to lend good money after bad and refused further funding – albeit the Government doesn’t seem to have been too bothered by the issue if they kept on awarding contracts to them up until recently.”
Waud is saddened by the end to such an established name in the sector.
“Carillion has a rich and lengthy history in construction and a long association with the FM sector which predates the demerger of Carillion from Tarmac in 1999. I recall Tarmac TFM in the late 1980’s – pioneering days of facilities management in the UK.
“It appears that the damage done to this once great and proud name has been largely inflicted from the construction sector and hence has little to do with FM services. These contracts are inevitably large, complex and risky – something it seems the company didn’t fully or accurately disclose in its financial reporting to shareholders and funders.
“What is perhaps of more interest to us in the FM sector is what will happen to the hundreds of FM contracts it is engaged in. Although almost exclusively public sector, I am sure that while some may go back in-house, others will need to find new suppliers.
Waud also questioned whether Serco may now be wondering why they recently paid £50m for Carillion’s NHS contracts, “which would now perhaps be available on the cheap from the liquidator?”