A year since its collapse and Carillion continues to cast a shadow over our industry.
The company’s fall from grace has had huge social, political and economic ramifications and with the business pages continuing to speculate on the health of similar outsourcing and contracting companies, have we learnt enough to avoid further liquidations?
I believe that there are five forces which all contributed to Carillion’s collapse. Client behaviours, abuse of its supplier power, poor internal governance, limited independent regulation and a competitive and low-margin market.
In retrospect this was a toxic mix and, as these forces increased, it was always destined to fail. Hindsight is a wonderful thing, but the warning signs were there for those who cared, and dared, to look closely enough. All businesses should learn from the mistakes Carillion made. They need diversity of thought around the board table.
Management and board members need a better understanding of the purpose, capability and the appetite for risk of the organisations they represent. In short, they need to be confident enough to say “no”.
Secondly, they need to proactively monitor their stakeholders and the wider business environment and consider the impact of decisions on the entire supply chain. From a client perspective, there are lessons too. There should be a focus on quality and outcomes for the end-user and an appreciation that they are working within one interconnected system which cannot be insulated from risk. A longer-term approach should be adopted.
While there may be short-term gains from value engineering savings, does it increase the cost of the asset over its lifetime or the likelihood of failure? The approach should be more akin to that taken by an investor working in partnership, rather than seeking to fulfil a contract. This would enable clients to support a sustainable market, leading to the incentivisation of risk mitigation, rather than its transfer down the supply chain.
It must be said that a lot of good work has already taken place following the collapse of Carillion. We’ve had a number of select committee inquiries, announcements on ‘living wills’ and new consideration of social value in procurement, the Aldous bill (which will introduce a mandatory deposit scheme for construction) and Project 13 has gathered pace.
Over the coming months we’ll see the government’s new construction strategy, a new chair of the Construction Leadership Council focussed on implanting reform and the response to the Hackitt enquiry which should lead to a risk-based approach.
From ACE’s perspective, we’ll be engaging with all of those and also championing relevant initiatives of our own, including publishing a standard on fair contracting terms and introducing a whistleblowing service for members.
In the medium term, our Future of Consultancy campaign will define opportunities to best apply the skills and capabilities of consultants and in doing so, influence wider systematic change. However, there is a collective responsibility for all of those affected by Carillion’s collapse to fix this.
Clients and businesses, large and small, all have an ongoing role to play to ensure we eventually emerge from this crisis with systematic reform and business models which are robust and sustainable in the long-term.
This opinion piece originally appeared in Infrastructure Intelligence.