How contractors should respond to the Carillion collapse

Michael Gallucci, managing director of construction consultancy MPG, advises firms affected by the collapse of Carillion how to respond. 

When contracting on construction projects, it’s imperative to have appropriate written agreements and programmes in place. Often, contracts give both parties the right to terminate if one or either becomes insolvent.

That means you can walk away from a project without incurring any further costs but what should you do about the money you are owed for the work you have already completed?  That’s the shadow hanging over around 30,000 businesses collectively owed £1 billion following the collapse of Carillion which has left chains of first tier suppliers and sub contractors in limbo.

The scale of this insolvency is extraordinary but the same common sense responses to a customer in insolvency still apply.    Firstly, it’s worth getting a good sense of how exposed you are. Clearly, if your business depends for its survival on the next payment from Carillion, as is sadly the case for some, it will be your number one priority. However, if your exposure is far from critical, it would be a mistake to spend every working moment on the issue when you have other customers to look after and opportunities to pursue.  Having said that, you still need to take some action urgently.

You may have seen news about banks creating a fund for firms affected by the collapse and of a new government task force to address the issue but don’t take those as an excuse to do nothing and hope for the best. There are plenty of things you can do now to protect your business.  Step one is to look at where you have outstanding contracts and whether these are affected directly or indirectly with Carillion.

This is a list of the companies in liquidation: Carillion plc, Carillion Construction Ltd, Carillion Services Ltd, Planned Maintenance Engineering Ltd, Carillion integrated Services Ltd and Carillion Services 2006 Ltd.  The liquidators, PwC, have set up a website for everyone affected. Go to https://www.pwc.co.uk/carillion and select ‘Suppliers’.  Check your contracts in both directions, firstly to see if you’re entitled to suspend or terminate your contract with your customer and secondly to see what your options are with anyone that you are sub contracting to. If you decide to take action under your contracts, make sure you do this within the terms of the contract.

Your contract with your customer may set out specifically what should happen if one of the parties in the supply chain becomes insolvent. Make sure you understand it and keep track of progress. If the contract doesn’t do this, take steps to retrieve the money owed to you, which may be through legal means or withholding future work on the project until you are paid.   Take steps to protect any physical property or supplies that you have not been paid for, making sure to do so within the law, of course.

I am a strong advocate of effective programmes and record keeping to protect yourself in the event of disputes or situations that lead to potential non-payment such as your customer going into liquidation. If you don’t already have full written records of the work you have carried out on any projects affected by the liquidation of Carillion, prepare them now.

There is much in the media about lessons to be learnt from Carillion. For contractors, the affair should encourage a review, firstly of how they enter into contracts and secondly their effectiveness at managing programmes and record keeping because when things go wrong, these can be the difference between being paid or losing everything.

Preparing a claim in a construction dispute

Preparing claims in construction disputes is among the services that we provide to the property sector under the heading of dispute resolution. Here are a dozen times we prepared claims to help clients win their cases.

  1. Defence Dockyard – On behalf of the employer assisting the quantum expert on a dispute with a main contractor associated with a nuclear submarine dry dock, specifically involved with analysing contractor’s alleged delays with a view to determining culpability associated with the engineering services aspect of the works, contractor’s claim for damages approximately £9m
  2. Military Bunker for Trident – On behalf of a mechanical and electrical subcontractor, providing advice and quantum information to the legal team relating to a military bunker, specifically involved with the production of documentation to assist with the valuation of the variation account and analysing the documentation to establish the basis of entitlement relating to prolongation, subcontractor’s claim for damages approximately £5m
  3. Specialist Eye Care Hospital – On behalf of contractor compiling a loss and expense claim including details of causation and quantum, claim value £660k
  4. Academy for Dramatic Arts – Assessing a controls subcontractors account and reporting on the further particulars required relating to the demonstration of the events that caused the delays and quantum particulars, claim value £1m
  5. Hotel Project (5 star) – Assessing a contractor’s account and reporting on the further particulars required in order to enable ascertainment to take place, claim value £1 .2m
  6. Media City – On behalf of an engineering subcontractor, general assistance to demonstrate that they were not culpable for specific delays, i.e. the demonstrating that the dominant cause rests with, for example, variations, delays in builders work activities, claim value £11m
  7. Hotel and Residential Project – Preparing a brief demonstrating causation to form part of a request for an extension of time, a preliminary assessment of the quantum that may flow there from, on behalf of contractor assessed claim value and preparation of final account £18
  8. National Sports Stadium – Drafting an acceleration narrative and quantum and preparation, negotiation and settlement of final account including draft of deeds of agreement, £53m
  9. Airport Terminal – General advice on projects in progress. i.e. when to issue non–completion notices, certificates, valuations, variations under NEC 3 contracts
  10. London Underground – Full Quantity Surveying services including the preparation of Claims amounting to £6m
  11. Residential Project – Independent valuation of variation account and reporting on Quantum. Prolongation and Disruption, totalling £1m
  12. Underground Station Project – Negotiation with LUL representatives, re-drafting variation submissions and checking Quantum for Dispute Team, £11m

Adjudication Services

Our experience in adjudication services covers a number of spheres in the property and construction sector. Here are some examples.

  • Residential Project – On behalf of subcontractor defending Adjudication proceedings relating to the variations aspect of the final account, including providing alternative quantum valuations in the event that the adjudicator decided on liability that we would fail, value of dispute £950k
  • World Airport – Preparation for Adjudication of six account and claims submissions for contracts terminated by Airports Authority in Dubai, disputed sums AED200m
  • M&E Adjudications – Preparation of quantum particulars on 4 adjudications for Contractor on M&E issues

Using expert services to resolve construction disputes

Our expertise in construction matters means our dispute resolution services are often utilised to provide Expert Determination and Expert Reports in order to solve property sector disputes.

Examples of our work in Expert Determination include

  • Redevelopment of Arts Centre – Undertaking an expert determination relating to valuation of circa 400 engineering services variations, value approximately £3m
  • Central London Buildings – Providing assistance to court appointed expert. £9m

We have prepared Expert Reports in a number of cases including

  • Data Centre – Quantum Expert reports on Data Centre project in Dublin, disputed sum €8m
  • Office Building – Expert Reports for Property Owner in Temple London regarding Chiller Systems and Fan Coil Unit Installation and Expert Reports for Property Owner in Lombard Street, London regarding Chiller System and Lift Installations

Consultancy services for legal claims in construction

Over the years, we’ve provided a number of services to help clients through the litigation process. Although we believe litigation should be the last resort to resolve property and construction disputes, we also recognise that the process must be managed properly. Here are three examples when our services helped clients pursue legal claims successfully.

  • Religious Building – On behalf of the Audit team preparation of Due Diligence reports for live contracts, £30m
  • Dockyard Project – Expert report preparation for a litigation case totalling £180m
  • Military Barracks – Quantum preparation on 54 separate clam issues to the total value of £8m. Also acted as a Witness of Fact on Variation disputes in Court of Technology Litigation