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Carillion: Cracks were showing earlier than director and auditor admit

22 February 2018

Ahead of the session on Thursday 22 February, the Work and Pensions and Business, Energy and Industrial Strategy Committees publish the first of the responses to their queries to "the litany of organisations ascribed some role or responsibility in the events leading to the demise of Carillion by its former directors".

Lack of challenge and preparation

In evidence in Parliament on 6 February 2018, former CEO Richard Howson was asked about the now infamous £845 million contract write-down in July 2017, which brought the crisis at the company into public view. Carillion plunged into insolvency with £billions of unpayable debt and £2.3bn in pension liabilities months later.

In response to a question about "the lack of challenge and preparation for a potentially disastrous scenario”, Mr Howson fell back on the discovery of cracked beams in the construction of the Royal Liverpool Hospital, which "added over £20 million to our cost of completion"...  "I am illustrating how the cost projection changed in Q2 of that year."

Response from the Hospital Company

The Committee is publishing a response from the project company contracted to deliver the Royal Liverpool Hospital, The Hospital Company, which indicates that the cracks were discovered nine months before the July 2017 write down, in November 2016, when they immediately halted work in that part of the hospital.

The defects and the resulting partial halt in work were reported in local papers in December 2016. The letter says the costs of the defects are currently being borne by the beam designers while liability is established. All work on the hospital is now on hold, following Carillion's collapse.

KPMG, who audited Carillion's accounts and signed the company off as a "going concern" in Spring 2017 on the basis of the 2016 accounts, four months before the £845 million provision, also audited The Hospital Company accounts. They will be questioned in Parliament today.

Litany of factors and organisations to blame

Frank Field MP, Chair of the Commons Work and Pensions Committee, said:

"These famous beams are becoming an ever more perfect parable for the whole company: the cracks were visible long before the directors or auditors admit, and while they were dutifully added to the litany of factors and organisations to blame for Carillion's spectacular demise  - anyone and anything but the people running it – they were only ever holding up one part of one of Carillion's thousands of projects."

Further information

Image: iStockphoto