The former chief executive of Carillion, Richard Howson, has warned smaller businesses to “be under no illusion” that the problem with payment in the construction supply chain “starts at the top”.
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The letter was one of a number published today, in which Howson was responding to a request by the Joint Inquiry to comment on its report.
Howson claimed the report had not considered “all of the issues which are key to understanding the reasons why Carillion went into liquidation” and claimed that significant evidence had been ignored or omitted.
He said: “Crucial to a thorough and proper investigation was for the Joint Select Committee to obtain an understanding of the amounts owed to Carillion by various government departments and agencies. In investigating the causes of the failure, the Committee should have asked Carillion’s government and public sector customers how much was properly due to Carillion under the contract.
“Carillion in my time was constantly chasing up its government and public sector customers to agree such additional amounts, despite the fact that such amounts had arisen because those customers had failed to adequately understand the size of their estate and had failed to administer the contract between the customer and Carillion in a fair and timely manner.
“Therefore, these amounts should never have been disputed because they flowed from the pricing structure in the contracts and the terms and conditions within the contract relating to change management. At the time of my departure substantial amounts were properly due to Carillion under the contract from government, or from government-owned or majority-owned entities on a range of contracts. I understand from concerns raised with me by senior members of the Carillion team present at the point of the liquidation that similar large amounts were still outstanding.”
Howson added that the government “quite rightly” expected contractors to pay suppliers within 30 days but that the government also needed to play its role in order to make this happen.
He said: “Government should be prepared (in all senses of the word) to administer monthly payment applications holistically to enable all parties in the supply chain to be paid fairly for all of the work undertaken within a given period.
“Hiding behind spurious disputes around scope, changed or varied works, eligibility for legitimate additional costs or punitive levying of performance penalties, and therefore effectively using its supply chain as a bank, is not acceptable. In this regard, the Federation of Small Businesses is quite right, but be under no illusion that this problem starts at the top.”
Meanwhile, he also appeared to criticise those in charge of Carillion immediately prior to its collapse in January this year (Howson left the business in July 2017).
Stressing the size of Carillion’s contracts and the contractual claims it had against its customers for additional variable works as well as against suppliers for non-performance, Howson said cash collection was a key part of senior management’s role.
“It is not clear to what extent effort was expended in this regard in the last few months immediately preceding the liquidation, when four out of the five existing experienced divisional managing directors were removed from their roles,” he said.
“I have had numerous concerns raised with me, from those there to the end, that amounts owed were not pursued by senior and executive management, and that they appeared to ignore the fact that those on the other side of the negotiating table expected executive management (given the seriousness of the situation) to be present to lead the collection of cash or conclusion of accounts.”
But Rachel Reeves MP, chair of the BEIS Committee, appeared to set little store by Howson’s arguments.
In a statement following the publication of the letters, she said: “Carillion’s collapse was a corporate disaster and the architects of its failure were the company’s directors. As a PR exercise they weakly told the Committee that they took responsibility for the company’s collapse but sought to blame everyone but themselves. Now, when given another opportunity to face up to the responsibilities for which they were so well remunerated, they again wriggle out of accepting culpability.”
