The sudden and dramatic collapse of construction firm, Carillion, is sending shockwaves through the industry, amidst fears that the fortunes of up to 30,000 smaller sub-contractors and suppliers will also be affected.
Already some companies who are owed substantial amounts, have begun laying off or making employees redundant. As cash flow worries mount, amidst pressure from their banks, it is believed that many more could follow suit.
Andrew Adonis, the former Labour transport minister, commented: “It is a bit like Lehman Brothers [the investment bank which crashed in 2008]. You don’t know what the impact will be. A very large part of Carillion’s work was project management where subcontractors do the work, but these subcontractors don’t know if they will be paid.”
Adam Davis, a Partner with Palmers who heads the Construction Law team, said: “The scale of the Carillion collapse is without precedent. Many sub-contractors and suppliers will be asking themselves whether outstanding invoices will be paid, what is happening with half-finished or newly awarded contracts and whether they should carry on working.
“The answer is not straightforward and will vary from project to project. Uninterrupted continuity of service will be more vital on contracts such as prison maintenance than those in construction.
“The Official Receiver’s (OR) priority will now be to engage with the subcontractors and inform them whether the OR has elected to honour the subcontractors’ contracts. Potentially they might also seek to renegotiate terms at the same time.
“As a priority, subcontractors should speak with the OR to establish whether contracts will be honoured. As this is a Compulsory Winding Up rather than an administration, there is no automatic guarantee that the OR will pay for future work.
“If you have not already done so, you should review all outstanding invoices payable by Carillion and prepare an updated cash flow forecast based on the assumption that none of these invoices are paid.
“If the non-payment of outstanding invoices is going to affect the viability of your business you should seek expert debt advice as prompt action will allow you to explore possible alternatives which may allow you to continue trading.”
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