UKC

"Market forces give us the best value for our goods and services".
Except we end up with monopolies and are then held to ransom.

"Governments meddling in business is bad for the market".
Except when they are going bust and taking pension accounts with them, or they are in danger of becoming a monopoly!

"Nationalisation is bad".
Except it seems to be OK for foreign governments to own and run our services.

Carillion now have the receivers "on standby", they are struggling with net debts of at least £900m. With worries for the £590m pension deficit.

Will we end up bailing this company out? (The Tories have already been trying by still awarding contract, knowing they were in trouble). Will we end up covering the persons of these people?

Is capitalism broken?

Aren't you taking rather an extreme view?  I think all but the loony right accept a government role in avoiding monopolies, regulating markets, protecting pensions etc. within a capitalist system.

The big problem that capitalism faces as I see it, is the fast diminishing number of people with any capital. 

Over the past 100 years or so plenty of companies have gone bust , plenty have reinvented themselves and plenty have grown.

So it's working.

Unless of course you want a society that does not change.

Extreme view; well I thought I might be a first, but then the more I thought about it the ludicrous it seemed to get. The Tories, most not just the extreme, seem to think the market give the best value and shouldn't be meddled with, yet we've bailed out the banks, the railways, Virgin and Stagecoach, etc. I do realise they don't have much option in a number of cases, but it's hardly a free market then is it?

It's like saying we don't want you to get involved (other than give us massive contracts), but if it all goes wrong then you can sort the mess out, with public money.

They also seem to be saying the mistakes by previous governments e.g. Labour and PFI can't be corrected.

Isn't it the job of government to protect jobs in exactly this way? After, all it was Labour policy to support the doomed coal mining industry for decades. Meanwhile your messiah wants to take over railways that, given the chance, by the law of averages if not by the much more likely agency of the public sector's incompetence, we'll end up keeping from bankruptcy within a few years from now.

As companies get bigger and bigger, as a result of market forces, then the implications of them going bust, becomes larger and larger, until the government have no option but to pick up the pieces.

But that's not the idea.  More that a well-regulated market will give best value. That's why we have all these regulators.  If you are saying some bits aren't well-regulated, I agree, but I don't necessarily agree nationalising is the solution.

Not entirely, no, but I don't think anyone claims it is, or wants it to be.  (Swivel-eyed loons aside). 

we're doing that now though aren't we?

The difference being when they are making a profit we're getting f*ck all back. It's only when they make mistakes they decide we can get involved, and come with their hand out.

Privatisation is all about market forces, in the market one company usually rises to the top, maybe three or four. But they then end up buying up all the smaller companies and consolidating any competition. So we end up with big companies that go bust then need help. It how it works, but it's shit, because we end up paying.

No, the likes of Hannan. Thatcher set up many of the regulators.

It seems to be that's how it's worked out here.

Is Carillion a sector now?

I spent about 2 years working for Carillon and what amazes me is they have not gone in to receivership way before this.

I have never dealt with a more incompetent and arrogant outfit in my life, their solution to every problem was throw more management at it, it got to the point where the division I was working for had 130 people on the ground doing stuff and 150 people in the office managing and scheduling those people. 

They were also the single worse company I have ever been involved with for payment, the 60 days regularly turned in to 90 or 120 days and before I stopped working for them I resorted to physical intimidation towards the finance director of the division to recover £52k in outstanding debt. 

Funnily enough it's the largest companies I have trouble getting paid on time from, apart from the German ones I work for they've recently started paying on 14 days!

Maybe we need more German capitalism

She was one of the great privateers though, wasn't she?

Housing, Telephone, Gas, etc. all under her watch.

I'm not suggesting we nationalise everything, but it would be nice to have an option e.g. a national electricity provider, a national gas supplier. We would then have a choice of buying from a company whose profits go back to supporting the country, rather than someone else's country. Even if it was slightly higher cost I'd still rather do that.

Yes, exactly, the idea it is all completely unregulated is wrong.

Well companies are taxed so we do get money from them , the idea being competition means we get better value too and it is cheaper than having to state do it as well as encouraging new ideas. Broadly I think this works (do you remember trying to get a phone line from BT before privatisation??). I do share your concerns about where risk lies and the taxpayer picking up too much when things go wrong. I also don’t see why e.g. German government backed companies can bid for things.

If Carillion collapse, what do we pay? Things will still be built by others so the jobs will be there.

Privatise the profits; keep the risk public. 

Great.

Straw man. Since when was Carillion providing a public service? It's a building firm isn't it? All Krikoman accused the government of doing was to give Carillion a favoured bidder status in order to protect jobs. Does that seem unreasonable from a Uk-centric stance?

Insert a lol. Amazon, Starbucks etc.... 

?????

Pity the poor employees. About 13,000 in the UK going home from work tonight not knowing if they will have a job on Monday. Not to mention the poor suppliers if they do go squit.

Except if they were monopolies and holding us to ransom they would never need to go bankrupt.

It does provide public services, or at least services in the public sector, upon which the public sector relies. It’s so intertwined with the public sector now it’s probably too big to be allowed to fail. 

I’ll grant you though, the rail companies provide a better example of the point I was making upthread.

There is an argument want to be had about crony capitalism and about how state restrictions prevent new companies growing. For example do state contracts limit new digital ideas from providing services to say the nhs because the nhs is such a monopolistic organisation. You continually hear about small innovative medical,companies who are banging hire heads against inertia in the nhs.

Also people tend to focus on the bad stuff rather than those that perform well. So for every southern rail you have a virgin west coast.

Who knows but Construction and services companies are rarely too sexy to allow to fail...banks, well, different story.

I think it's more likely they will go bust, very soon, and UK Gov will be involved in the clean up operation.

I probably didn't make my original point very well. I'm almost certainly one of Carillion's creditors through one of my corporate bond funds, and I'm not expecting or asking to be bailed out. I accept that lending money carries risks.

But if jobs can saved, not by a bailout, instead by a package of contract commitments that is cost neutral to the taxpayer, why not?

Or here is a radical idea, how about awarding those contracts to businesses that haven't run themselves in to the ground. Yes jobs will be lost but I'm willing to bet that most of their workforce is only working on short term contracts.

My experience from people I know working directly for any of the big civil contractors have to apply for say the project to widen the A1 between Leeming bar and Darlington but once that job is finished they have to apply for the next one and so on and so on. Typically it's only the upper management that stay with the company. If Carillon don't get it then MGJV or someone else will and they will hire all the boots on the ground that they need but the difference is they are not going bust so that hints at the fact that they can run a business and manage a contract. 

That may indeed apply in this particular instance and then there would be no jobs at stake and no jobs-focused rationale for a bailout. On the other hand, there may be other arguments against allowing the contractor to fail. It may be that securing the continued delivery of its contract commitments through other contractors increases overall costs beyond the levels suffered in a publicly financed reconstruction of Carillion. What is certain, in my mind as much as yours, is that the board of Carillion could not be allowed to continue in situ.

Carillion expanded to the size they are now by borrowing money to purchase other companies, taking on all their pension liabilities in the process, they seem to be an over large conglomerate who has not made any significant efficiency savings by absorbing the other companies.  The banks who financed the take overs should not be complaining now.

It's also important to consider the fates of thousands of companies and their employees who will go bust if Carillion defaults. Imagine you had spent decades building your firm only for it to collapse because of non-payment. Efforts must be made at the very least to prevent that scale of contagion.

So bail out the the companies they owe then. Contract goes to a company that can deliver it, the equipment is supplied by the original companies that Carillon owes money to but paid for directly by the government. Should be cheaper because it cuts out the markup on the equipment. 

Also the top level people at Carillon should be asset stripped to go towards the pension shortfall. 

And yet Carillion management have still been getting their bonuses, so it's the tax payer that's losing out, again, while the people at the top walk away scot free.

Then the slack has to be taken up by another company, which is part of what I was saying in the OP.

There's one less competitor, another company gets larger, so there's less competition and a bigger disaster when things go wrong for this larger company.

Which was my point! The end game of unfettered capitalism is a monopoly, which we all know is bad, so the government interferes with market forces to prevent monopolies forming.

My issue is the Tories want to have their cake and eat it, we can't have nationalised industries because it's interfering with market forces, and yet....... see above.

Carillion provide plenty of public services, I'm assuming you seen the news by now, but I thought most people knew that.

I was accusing the government of being hypocrites, saying market forces should rule but then bailing them out or changing their contracts, amongst other things.

Then it's not market forces alone which determines the system, and the excuse for privatisation isn't the truth.

Why would it be so hard to have a state supplier of any infrastructure service we have no choice in buying? Why would that not drive down prices better than the privates sector?

And the pension pot of £500 million? Who picks up that bill? More to the point who got / gets the benefit out of it?

Also see above, the bit's of Carillion will be absorbed by a competitor, no doubt, making them bigger while simultaneously we've lost a competitor in the market, one step closer to a monopoly, one step closer to this happening again.

When I was 25 I worked for a huge employer that went down fast and I lost my job. However, my pay off, (3 months + 1 month for every year worked) meant it really wasn't that much of an issue to lose my job, even though it was during the dotcom crash.

If all large (undefined...) companies were forced to guarantee a decent payoff if they have to lay-off staff, maybe the government wouldn't have to bail out these mismanaged companies for the sake of the employees.

On the whole I think capitalism is ok, but put in some rules so that the workers are protected not the directors and shareholders.

Why are you so confident that a company managed by the state will be any better managed than a private company ?

I think Carillion have been sailing close to the wind for many years. Its a while since I worked for a company in that industry (2005) but I recognise the issues their suppliers face now as detailed in a few posts here. We were a provider of maintenance / building services for them; their contract with us had the worst rates of any of our similar customers, and we only managed to get it increased by a) threatening to walk away, and b) actually walking away. Their management was arrogant beyond belief, and they seemed to think we should be grateful that they honoured us with their custom,and that we were acting unreasonably in expecting to be paid anywhere near agreed terms. No other customer of ours acted like that, and it seems they havent changed in the slightest in the intervening 12 years. My view is that it is a good thing they have gone under, but hugely regretful that their will be many many contractors and subcontractors that will suffer greatly as a result.

No reason at all why it should be managed any differently at all (better or worse). Nationalisation means public ownership, as in replacing private shareholders, not managers.

Are you suggesting that we should nationalise bookshops and cafes?

 "This really shakes public confidence in the ability of the private sector to deliver public services and infrastructure."

He said there needed to be a change of "mindset" at companies that do a lot of work for the taxpayer.

"You've got to treat yourself much more as a branch of the public service, not as a private company just there to enrich the shareholders and the directors," he said.

What kind of drippy-hippy, loony left nonsense is this? Bloody socialist... Who was it?

Oh - Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee you say. 

A decade or two ago my mother did site management stuff with them and  laing, amey.. I don't think she'll be too surprised at this outcome. Just relieved she has retired now, but not so good for some former colleagues. 

Its a double edged sword. 

In the last 100 years it has (and continues to) lifted millions of people out of poverty and improved the lives successive generations around the world.

But the flip side and problems are become evident. You cannot sustain continued growth indefinitely, 3% growth gives a doubling of the world economy ever 24 years, with all the knock on effects of environmental degradation, ecological damage, pollution, resource depletion etc etc. So physically impossible to sustain for the long term (and perhaps the short to medium term too).

Then you have automation and development of IT/AI, which looks likely to rapidly wipe out the vast majority of jobs that average Joe does, thereby potentially removing the basis of continued capitalism, middle class spending.

And also, upward concentration of capital to the richest classes., and stagnant wage growth in the western world. If the 1% have all the money, who buys all the shit that capitalism produces?

I've no idea what will replace it, but something will have to eventually.

That doesn't follow.  The reason for privatisation is the belief that competition overall delivers better value and innovation.  The reason for regulating the markets is to ensure competition, for example by avoiding the monopoly threat your highlighted above.

Because it would become bloated and unresponsive to change like any organisation without competition.

Isn't it the pension rescue fund?  I think it is resourced by a levy on all pension schemes, so indirectly I guess that is a cost to all of us.

Or perhaps their contracts will be awarded to a number of  smaller, nimbler, competitors who have been struggling to make a mark until now because of Carillion's dominance?  Depends.

If the company has gone bust then where does the money come from to give the staff a decent pay-off?

I'm not, what I'm suggesting is the don't need to be better for the country as a whole to benefit.

They only need to be equal, or even a little poorer and we still benefit more than not having an option.

With a a national supplier available, let say for electricity, the country has an influence on the price per unit, rather than a group of private companies. this influence can obviously hold down price rises, which would drive customers from existing suppliers to the lowest prices.

Not only does this hold prices down, of at least give the government some control over market prices, but it has the added benefit of returning any profit back to the government coffers. They would also pay tax on their profits, just like any other company so it's win win for us, the tax payer.

Supposing the said, any profits we make go directly to the NHS, they wouldn't have to be the cheapest supplier, because people could / would have the satisfaction of knowing they are supporting a good cause. This would also prove / allow the "I'd gladly pay more for the NHS" brigade to do so without affecting everyone.

Well, that's why I said large companies. They should be forced to set aside enough money. Of course it would help if all countries had the same tax rules...

Why? Why can't there be room for both, why not give people a real choice and let them vote with their money. Or are you suggesting that given an option of a state supplier of services, they would always win out and they'd become the monopoly? If so you 'd have to ask yourself why? Wouldn't you?

Which is what I said, if it's coming form a fund or the government it's us picking up the tab for mismanagement.

Not very likely and not what usually happens.

I'm not sure what you are suggesting.  Is it there is *only* a state supplier, or that the state runs a supplier in competition with purely commercial suppliers?  If the former, I simply don't think it works as it becomes a monopoly in itself, as above.  If the latter, I'd consider that if it was genuinely at arms length from government, like for example the Ordnance Survey.  The problem is what happens when it gets in to trouble.  Does the government bail it out (i.e. fund a loss making entity), or let a state owned company go bust?

I totally agree, but it's unsustainable, it's based on buy more, use more, have more children to provide us with pensions, ethos which is, as you  say, degrading the planet.

Surely there has to be a mix, or at least an opportunity for choice, which is what we don't have.

Our councils don't have the opportunity to supply their own council houses, they have to use housing associations, because of this they have zero influence on rents. While some people say well there's competition in the market, if all the competition is working on making 50% profit then it still expensive and higher than you need to pay. It's us, through tax and council tax, that ends up paying private companies profits.

I can hardly be classed as a communist or against capitalism, I've run my own company for the last 15 years, but I'd like to think there should be other options for our services and strategic supplies.

This^

The problem is what happens when it gets in to trouble.  Does the government bail it out (i.e. fund a loss making entity), or let a state owned company go bust?

Why does it have to get into difficulties? Are you suggesting this is inevitable?

If so why, why does it being state owned need it to be inferior?

Pretty much.  Commercial entities go bust periodically (e.g. Carillion).  Why would a state owned one be different.

I'm not saying it would.

Was it not Sir Philip Green who got BHS into problems with its pension pot?

The same one who has managed to get Carillion into problems with its pension pot?

Shame for the worksers.

The are rules about how much redundancy pay a company is obliged to pay.  They aren't anywhere near as generous as what you got:

https://www.gov.uk/staff-redundant/redundancy-pay

(I also got laid off in 2000, and got roughly the same as you, with eleven years of service.  With the first £30K tax free, it easily paid for me to spend a year pursuing 'personal projects'.  I've been made redundant on two further occasions since then.  The payoff was more meagre each time, not helped by not having spent as much time at each employer.  In both cases I did not have the financial freedom to take my time, and pick and choose my next job, but at least it was still more generous than the statutory minimum.)

Because it's not driven by a need to drive up the share price? I don't know about Carillon specifically but many companies go bust because they expand ill advisedly/too quickly as this is a quick way to massively increase revenue (if not profit) which leads to bigger renumeration for the board and directors. It's shows rank incompetence that a construction company which weathered the 2008-11 downturn goes bust during the current boom.  It might be that it is the service contracts that have taken it down but if that is the case then that displays a similar level of incompetence given that there are guaranteed revenue stream and customers that always pay. 

That brings me to the other problem I, and many other people,  have about bailing out Carillon to protect jobs -  Carillon don't create the jobs. The jobs supporting govt contracts were there already, I imagine a lot of people were TUPIed in as contracts were acquired. The people running these companies are not being rewarded for their entrepreneurialism but for making short term decisions to boost growth which are not to the benefit of the employees or the company (e.g. poor acquisitions or winning long term contracts by under bidding) before moving on. They risk nothing but gain massively. 

I can sympathise with the Carillon staff today. 8 years ago I woke on a Monday to similar news. After 28 years with the same company, also construction sector, they went bust. My salary wasn't paid, kiss goodbye to 28 years redundancy entitlement and some of the poor subbies who I had worked with for years lost everything. Construction can be a great.... and cr*p sector to work in. 

And that is exactly why I would asset strip them. Pension contributions should come before bonuses. 

Nice idea except for the reality that many "old" businesses have legacy final salary pension schemes which have been knackered for years. Not only in construction, and unrelated to bonuses. 

Try to fully fund the gap in reasonable timescale, company runs out of cash and goes bust. Readjust the scheme too fast and your staff leave. In the meantime don't forget to pay a dividend to shareholders or their support may evaporate. Not easy.

Oh, and of course stay competitive in the market at all times. 

Then what's the difference? We're still bailing then out aren't we?

Besides that, not all companies go bust, so why are you sure a state owned on would?

But you seem to be.

Except, Carillion seem to have bragged about the fact they've been increasing dividends year on year, and bonus payments were related to dividend price! So once again the little bloke at the bottom gets screwed to fund the payments to the top earners.

No.  They went bust this morning.

Companies tend to merge, go bust etc over time.  Why would a state owned one be guarenteed to service.  How many are you imagining.  If the government owned say 100 companies, it would be pretty likely at least one would get into to trouble each  year.

No, I'm just assuming they won't be much different if they are at arm's lengths from the government, or in effect subsidized, and therefore not competitive, if not at arm's length.

I realise that, but that doesn't mean we won't be putting tax payers money into their f*ck up does it? Who's going to be paying for the continued public services they're currently providing, and their pensions?

The merging is part of the problem! It was one of the points in my OP maybe there's a case for not merging.

As for how many? I've no idea lets try 5 for starters, and National Bank, that offers all the services of a high street bank, not just savings, electricity supplier, gas supplier, water supplier, council housing association.

Well of course they'll be different, they won't be beholding or run to provide profits to shareholders, for a start. There won't be the pressure to increase dividends year on year, as seems to be the case in Carillion.

We we are, but we were going to do that anyway!  Now it will just be a different contractor.  We won't be paying the shareholders for their loss.

OK.  And what happens when the gas supplier (say) runs out of cash? "It won't happen" isn't really an answer.

I assure you from friends at OS, that's not the case.  The Treasury wants dividends just as much as shareholders do!

Are you being deliberately obtuse?

Of course we won't be paying shareholders for their loss, that isn't the issue, Carillion might well be in this position because they've been overpaying dividends, so the directors bonuses increased since these we related to dividends. So instead of paying what they could afford they paid more. Also, you have to find a replacement contractor first! What would you do as a contractor if the government came to you? I'd imagine they'll be saying, "well we need a bit more than you were paying, if Carillion have just gone bust, it's obvious it can't be done for that price.". You seem to think there won't be any consequences. Besides that, the receiver / liquidator is going to what there slice of the cake.

But that's not the point, that's simply bad management.

Bad management is bad management whoever owns the company, it's as daft as saying state owned companies aren't as good as private companies.

Yes there is a cost from Carillion to us all, but we aren't "bailing them out" - they've gone.

I don't follow you entirely.  However, if you are suggesting the government could own a gas company say at arm's length, I wouldn't have a particular problem with that as long as it wasn't indirectly propping it up and hence costing the tax payer money and, if it did badly, it could be let go out of business.  The government owns(ed) banks for example, which hasn't been either a disaster or a great success after it was forced to support them.  It owns OS but increasingly people are buying maps from e.g Harvey because they are  better for specific applications.

Once again, I know!!! But there are still bit's we'll end up paying for or supporting which will come out of tax payers money. If nothing else it's going to need some, from the government to look at, and make decisions of who gets to pick up the services Carillion was offering.

Gas supply is essentially a brokerage job which is why you can by your gas from SSE or Scottish power so obviously once set up they buy gas from the producers and we buy it from them.

They haven't owned the banks with running them long term in mind though, beside Lloyds claims we made £900m from the bailout, in such a small period of time!! https://www.theguardian.com/business/2017/may/17/lloyds-taxpayer-bailout-ba....

We're not doing very well out of BRS as far as I can see but they were deeper in the mire.

There's not much between the bank, customer wise, interest rates are the same, for both savers and borrowers, so if the state set up a bank ( we already have national savings ) but they don't do mortgages (which is where a lot of the money comes from) why wouldn't you put your money or get your mortgage from them?

Loopholes have been closed and they’re now paying tax. 

Keep up. 

It’s not just bad management. 

They’ve been heavily involved in emerging, risky markets that haven’t been paying for work done. 

Some of those skyscrapers cost £0.5bn. 

That would be the cherry on the cake.

I have nothing against privatisation of public services in theory. 

But in practice we just created too big too fail corrupt giants that give us terrible value for money, are incompetent and irresponsible, and generally behave like thugs. The incentive structure is all messed up.

And when inevitably they f*ck up someone else has to pay for cleaning the mess.

You're a funny guy. 

This could equally apply to public companies, of course.

Eh? Who makes those decisions then?

http://www.dailypost.co.uk/business/business-news/a55-roundabouts-carillion...

So the good news is Carillion were supposed to be digging up the 2 roundabouts on the A55 in North Wales, lets hope that won't be happening now

Is your answer then that literally every private business that loses its way should be nationalised ?

one of the functions of administration or insolvency procedures is to close down badly run and loss making companies. 

If your a supplier who got caught out then ultimately it’s your  responsibility as the warning signs were there  for every one to see.

Its not quite as simple as that, my biggest customer was Mc Alpines and all was good but Carillon bought them and suddenly I'm working for Carillon. Having never dealt with them before I was not prepared for what a shower of shit they were but I couldn't afford to walk away from the work without laying of 4 people. I got out though but I had to set up a new division of my business, grow it to be profit making and slowly slip out of Carillon and take over looking after my new customers. It took a couple of years before I could afford to walk away from them without job losses. 

The good news is you could now set up a "£300 to change a lightbulb" division to take over Carillion's FM contracts.

Thank you. 

You should keep abreast of current affairs though before you regrurgitate old (2+ years?) news. 

You’re suggesting the management deliberately took on jobs that they knew they wouldn’t be paid for?

How regular? Do you have any examples?

 But you said in an earlier post you had dealt with them a few years ago and when they paid you£55k you walked away from future contracts. So you had already decided not to deal with them and moved on.

Business owners like you and me have a responsibility to manage your credit exposure . If we have failed to do this then it is your responsibility .

It’s no good crying over spilt milk after the event .

If we decide to take the risk then so be it .

If your company goes into administration. It’s ‘the company’ that gets saved. The directors could well be prosecuted. I think there are posters on this thread who think that companies are faceless organisations. 

https://www.gov.uk/liquidate-your-company/what-happens-to-directors

That is bad management.

I suspect they will take a lot of sub-contractors with them.

Absolutely true, however we sold us mass privatisation as being a better and cheaper than state ownership. 

And it’s pretty obvious that this hasn’t always been the case in the way it has happened. I’m not opposed to it, you just need to have the proper safeguards and proper incentive structures.

In my view, when a company providing critical services become so big and takes on so much risk and debt, to the point that it becomes a liability for the taxpayer, that company should go on a special list of companies on which the state gets some degree of monitoring and control. Simples.

I bet if you do that then they’ll take the actions necessary to make sure they don’t end up on that list, nudging behaviour in the correct direction.

Carillion isn't a privatised utility. It's a bloated amalgamation of building firms who absorbed some public sector workers. It might have been shit at service provision but that isn't why it went bust. It appears at first glance that the outcome can be attributed to a combination of overborrowing and poor risk management. 

When we built a £16m IT system for the NHS, the contract gave them all sorts of right to audit and interfere. Mind you, the poor NHS reps wouldn't have understood what they were looking at.

I know these were separate points but they both point to an issue with how the govt chooses its partners. There was never any need for Carillion to go bust but it did because its sole objective is to make money. I know all companies are there to make a profit but most have a core business. It would be better if the govt dealt with companies that dealt in one field, were expert in that field and had grown up organically in that field instead of choosing companies that are little more than speculators in contracts. As the FT said today Carillion was liquidated rather than went into administration because it didn't actually have assets, it's just a bunch of people betting that a contract will turn a profit. As I said up thread this just leads to boards and directors expanding because that is the way to greater personal remuneration. Someone up thread said its inevitable companies will go bust but it's possible to find companies that will never go bust as long as there is a market for what they do and the customers in that market are able to pay.

I don't see a way of ensuring that the govt chooses the correct partners unless it brings that service provision in house, at least then we can guarantee that the entity providing the service has a vested interest in that service rather than just the bottom line. The problems around (perceived?) inefficiencies of state owned businesses can be addressed with sufficient will, q.v. the health service

Only subcontractors with bad risk management. 

Having no assets seems to be the business model of every company nowadays.

Up to a point yes, but most have something, e.g. expertise or a work force but most of these contracts use the same workforce as the previous supplier and the one before that all the way back to when they were govt departments. 

That’s because of TUPE. The same is true for any large company that outsourced its service labour. If cleaning isn’t your core business, why employ cleaners? 

These people still work for and are employed by Carillion, regardless of who they worked for before. 

If they are service companies, ie about 80% of all UK companies, then what do they need in the way of assets, other than some retained profits for a rainy day? My company's fixed assets are 0.00004% of our turnover. The real assets are the people and they don't appear on any balance sheet. It's how you look after them (and your customers) that matters.

It doesn’t matter, the point is, these type of firms become so big and monopolistic that they become critical to the country and the delivery of public projects. When they fail the taxpayer has to go in and pick up the pieces.

As such, in my view, these companies are de facto a monopoly providing a public service and should be forced to be run more responsibly and monitor their risk. There is an obvious systemic risk for everybody if the country is effectively run by poorly run companies who accumulate debt and  risk and leave us to pay the tab when it blows up. 

Think what would happen if G4S or Serco were to fail... we would have to send the army in to take over in all likelihood !

That’s a completely different situation, having safeguards in individual contracts is obviously a must, and in the case of a minor IT contract for the NHS that’s obviously enough.

But it doesn’t help when we are dealing with monopolistic giants who essentially hold the government by the balls. You need somewhat  stronger regulation and framework to compel the boards to act responsibly and limit their risk. Pretty much as we do for banks.

Exactly. 

No. The receivers step in and run the company until it turns a profit, or is broken down into smaller profitable units to be sold off. 

At which point it may already be too late, and we have to pick up the pieces and bail out (RBS, Lloyds) or let them fail and deal with the chaos left in their wake (Carillion and others)

I don’t care at all whether we go private or public. I’m a pragmatic, if public works do that, if private works, then do that.

All I want is to not have to pay for other people’s recklessness .Those takings the risks and the debts have to pay for it, not me. Very simple.

But you must be able to see the difference between a company that comes along and says we have X number of employees with these skills, that we have trained and we will build something for you and a company that comes along and says we have relatively few employees but we'll do what you are already doing, using the people that are already doing it and you will pay us to do that. There *may* be case for doing it with IT managed service contracts but I can't see the case for doing it with, say, prisons where the expertise for running prisons is almost entirely already within the prison service and all an outside contractor will do is try to reduce cost. This is what I mean when I say that govts should only be using private firms if they are able to offer something the govt dept can't do already. 

The worry is there will be more Carillions as there are third and fourth generation contracts that have been won only by being cheaper than the previous incumbent, this can only be achieved by a reduced service or losing money. 

You probably shouldn't; few barriers to entry means that tenders will always be competitive and easily defined requirements mean that it is easy to manage, not to say if something goes wrong the repercussions aren't that great. However, how is a private company going to run prisons better than a govt department, it's not as though they can bring in a load of employees that have worked in all the other prison services in the UK.

I'm not sure what point you are making here. 

That's nonsense, directors will only be prosecuted if they have done something illegal, same as if you stop paying your mortgage and your house gets repossessed, you don't get prosecuted.

When companies the size of Carillion go bust the directors are rarely the victims and seldom out of pocket. There's a reason the the Carillion directors changed the rules on bonus claw back a couple of years ago. I think you will find the directors will lose very little.

If you can tell me where I suggested Carillion should be nationalised I'll answer the question.

Administration is supposed to get the best deal for the creditors, it doesn't decide to close down any business, badly run or otherwise.

How is it your fault? Do you know anything about business and how it works. Firms owed money are in a very weak position dealing with the likes of Carillion, you're owed money, they then blackmail you into doing more work or you'll never see the money you're already owed. Payment terms become longer and longer.

On the other hand you don't think the government was in the wrong giving more contracts to a company in obvious financial difficulty?

There is a load of hot air on here from people who clearly have never pended a company which they have had to put into administration!

I speak from experience .

in any company that goes to the wall, even the likes of Carrillon there are clear signs to suppliers and subcontractors to refuse to deal with them.

It’s up you as to whether you read them or not .

Or you take a risk that you may get paid  .

It’s day to day credit risk management . It is surprising how many suppliers or sub contractors do not do it .

it is also surprising how many do it .

It’s not nonsense then is it? The directors could well be prosecuted. You’ve just basically repeated what I wrote but in a long sentence. 

The directirs easentially lose their income and their bonuses. 

Yes I got paid and then walked away. Because they bought my biggest customer and in fsirnes6me sleepwalking in to a dependance on said customer I had no choice to carry on with them or go down. 

So I built in a different direction then when I was stable enough in said direction I stopped working for them. Due to their 60 day (more like 90 to 120) payment terms they were always going to owe me a chunk of cash and once I had stopped working for them I lost the ability to put them on stop so I had to use other methods to get paid.

Edited to add, they would have owed me a lot more but I had been reducing my work with them for a while in preparation to finish with them. 

I think you're suggestions are a little bit simplistic.

I've been stung twice, both large companies working for other large companies. Luckily I could handle the loss, because the receiver was useless. One a massive German that went badly wrong over the period of a couple of months.

I've also worked for (as an employee) a company which regularly, three times, called in the receivers twice, debt of £1.2m the first time!

The blokes still in business and probably still ripping people off. He looked around and found people to carry on other people's work after they f*cked off, but it was difficult for them to know what was going on. Unless they worked with me because I would tell them. He relied on people's good nature and was very convincing.

If it was as easy as you're making out, then I don't think there's be such a great number of companies shitting themselves about Carillion.

Beside what your suggesting very often companies end up working for someone, who's working for someone, who's working for someone, who's working for Carillion.

How do you account for Enron, no one knew what was going to happen there, and unless you had insider information you'd have been very happy to get a contract off them.

Of course using your crystal ball it's dead easy to say it companies own fault for dealing with them.

If it's so easy you should be a millionaire.

They face no increased risk of prosecution as a result of a company going bust. They face no more likelihood of being prosecuted as a result of a company going bust than an employee or you and I. 

They may lose their income temporarily but they will have been, in general, well rewarded to that point and in most cases will be again. They haven't lost their bonuses because they haven't earned! Further, they would not have deserved a bonus for many previous years and in this particular case the directors knew it which is why they changed the rules on bonus claw back

And I bet there were plenty of suppliers and subbies to Carill0nwho in the last few months walked away and put them on hold and threatened court proceedings and got paid  or tried another route. just like you did a few years ago .

its just you never hear in the press about those who did the right thing in managing their credit with them. 

Yes they will face that risk. Because in all insolvency / admin procedures it is always reviewed.

Depends on the business, I have a couple of buildings, vans, tools and equipment, stock etc, all bought and paid for (still got 8 years on the mortgages on the buildings though).  Other businesses, as an example a H&S consultancy that I use rent a small office and their entire assets are a couple of computers and a printer. 

A lot of companies rent everything, when they go bust they just hand it all back.

It's becoming even more prevalent when the main source of income is intellectual property. a good percentage of our income is from software!

Not really. Having an asset if it’s in your balance sheet  is a useful way of getting a good credit rating which makes it easier to get payment terms from your supplier. 

Managing your credit rating as a business is often overlooked.

Basic credit risk management is often overlooked by most companies. 

It would be fascinating to learn what the credit risk agencies were saying about Carillion.

I use to have next to my factory a business that would be described as a Phoenix one. Kept going bust. You only had to look at their credit rating to figure it out. It’s not difficult. 

Whilst we are at it, for companies on that list...  Dividends and individual pay over some threshold (circa £200k?) are paid via a multi-year escrow account, and in the case of bankruptcy the escrowed cash is forfeit to the creditors.  There’s a carrot to make sure executives’ and directors’ minds are focoused on the medium term.  I’d be tempted to link the length of escrow to the size of the dividends on a per-person basis.

They face a risk of being caught for wrong doing but that's it. In the same way as you are always breathalysed if stopped by the police whilst driving. But DancingOnRock's point seemed to be that getting prosecuted was an occupational hazard of being a director. 

there are loads of different models for managing credit exposure . Your escrow account is an inefficient tying up of cash which could be used to grow a business. 

Its a conplcated business being in business and managing these issues.

Prosecution is always a risk for any of a directors activities.Far worse is a H&S prosecution  or manslaughter charge. 

I’m not proposing it as a viable way of managing credit exposure.  The cash tied up is not business cash once it’s paid out.  I’m suggesting it so that those at the top have a bit more incentive to think longer term.

Of that I am sure.  I can tell when I look at the salaries people command for it even when they fail...

We're talking specifically about prosecution as tea result of incompetent directors driving companies to bankruptcy, I'm not aware of any cases of this happening and I can't think of a way this could happen with out here being criminal activity involved.

Unfortunately that's all too common. I credit check everyone but even then occasionally someone slips through the net and despite a good rating they still go bust on the Friday and start again on the Monday with a slight name change. Last one was a window company that did exactly that but put the letters UK after their name. They were only in to me for 5k so it wasn't the end of the world and as it happened there was a mistake on the paperwork so the debt agency I use managed to collect in full but that was pure luck. 

Don't forget the old chestnut of setting up a holding company that buys all the assets then rents them back to company A. 

As you know I rown a company that exports. Try managing your overseas credit risk exposure. 

Not always easy.

I do like the German model. But I do not know how that works in the German construction industry .

Not the point, what we are saying is there should be proper long term incentives structures for those managing big companies that represent a systemic risk for the economy and society at large. 

I do the right thing, I save, I don’t take on debt, I manage risk properly. I don’t want to pay taxes to fix the mess left behind by those who did the wrong thing. It’s a very simple concept anybody can understand.

Well the IOD basically did not approve of Carillions bonus scheme for Carillion .Ultimately shareholders can kick back schemes in favour of longer term incentives. But you know that anyway!

Clearly for Carillion the writing was in the wall for sometime . Even the guardian has said the signs were all there:

https://www.theguardian.com/business/2018/jan/16/six-warning-signs-that-the...

I thought that was the case, and they were on such a list, or at least it exists for such companies considered rocky.  However the post overseeing them was left unoccupied for three months - black mark to the government

The problem with companies of this size with this many contracts is that they are often the main game in town.  You might well not like dealing with them, but if it's them or nothing....

Sometimes they do, sometimes they don’t. That’s no really the point though, in my view if a company represents a systemic risk for the economy and society, then they should automatically have more legal requirements when it comes to managing risks, and managing reward. As we do now very extensively for banking.

Yes all the signs were there, and yet, top management got paid millions in cash and bonuses, and tweaked the claw back rules just before the shares nosedived...

Reward for failure. Honestly I do not care if some people somehow manage to pay themselves handsomely to fail, good for them, that’s great.

I just do not want to pay for it.

http://www.bbc.co.uk/news/business-42710795

Where to start.....

Well we do not know the finer points. For example they may have had to post performance bonds on some contracts. That is one for the liquidators to sort out. 

Personally I do not get building service type contracts they seem increasingly short of cash flow as a general rule. 

I do know that certain building service contracts recognise this and there is more a work together approach instead of adversarial. Maybe that is the solution. Bit outside my experience. 

Start by trying to find an administrator ... two of the big four saying no does not bode well.

LD

The technical details are quite irrelevant here.

I don’t want to pay for other people risks and failure, that’s simple. 

They certainly were. My wife told me about 9 months or so ago, maybe 12 months that she expected Carillon to go under soon. 

She is a credit control professional dealing predominantly in the construction industry and despite being off sick for the last 2 years she still follows the big players to stay up to date and told me about Carillon due to my former link with them. 

What's the German model? I don't export at all, there is no call for it in my game. 

Then what was the government doing giving them more contracts?

You seem to blame the companies doing work for Carillion for their own downfall, there's a lot of money to be made predicting this, why don't you set yourself up warning companies of the next big crash?

I know it's a nightmare, 1,400 apprentices! A lot of people only see the money side of this but it goes much deeper.

I'm taking a wild stab in the dark here but I'm guessing Neil doesn't have to wait anything like 120 days for payment.

W

I am late to this thread and haven't read other posts in detail.  

The scale of the losses makes it fairly evident that this situation didn't arise overnight and the losses must have now been accumulating for quite some time.  Those in government must be held accountable for continuing to award contracts without applying due diligence.  I work in a sector where large contracts with government departments are common and there are so many supposed checks and balances to prevent this sort of thing occurring, but it's fairly obvious that they don't work.  There is a very poor level of competence among those reviewing/awarding contracts.

Correct. But it also works both ways. As a supplier to them you have to show you are credit worthy in the first place. Often overlooked. 

As I said not sure if it’s the same in their construction industry. 

Just maybe a lot of their contracts were not significant in the overall scheme of things.

so compared with the potential for Southern Health who manage a lot of elderly care homes and who are in financial trouble , Carillion might have played second fiddle.

Presumably then a lot of well managed sub contractors and suppliers had pulled the plug on them or reduced their exposure. All sensible stuff.

No doubt this will come out in the wash. Reminds me of when all the Icelandic banks closed and a load of local authorities lost money. Then turned out that they had been warned not to put money with them .

The contracts should be subject to due diligence due to their massive value and the fact that they often deal with critical infrastrcuture.  I'm not sure what the total value of he Carillion contracts are, but I would imagine that the value puts them firmly in the genre that requires frequent review and due diligence.  I find it hard to believe that our armies of civil servants and bureaucrats are too busy dealing with Southern Health to regularly review other major contracts.   

The system for contract bids/awards and monitoring of this type of contract is clearly not fit for purpose.  A situation where pulling the plug is unthinkable, to the point that the taxpayer has to bail out private companies, should not arise.  

You seem to live in this world where there is a perfectly smooth market with lots of choice and complete transparency on the credit worthiness of organisations and the way they are managed.

In the real world, you can’t always know what goes on with a supplier, and governments often have no other choice but to use big companies like Carillon, G4s, serco, etc etc, because they are the only ones with the capacity to take on big contracts. Not to mention the revolving doors between politicians and these big companies.

And that’s fine, I have nothing against big companies or even monopolies, it’s just that when they become so big that they become a systemic risk, then extra rules should apply to them, so that we don’t have to clear up their mess.

The problem with that is if Carillions bid for a contract gets rejected in favour of another contractor whose bid was 10% higher, then questions are asked regarding "value for money". 

But yes, the whole system regarding private contracts for public services does appear broken.

Southern Health is probably in trouble due to PFI contracts...

The failure of services on a national scale due to Carillon going under will probably dwarf the issues with Southern Health.

Not true.  I know from experience that not all contracts are awarded to the lowest bidder.  There are usually a variety of factors that are usually taken into account, including  the likely profitability for the contractor.   Someone hasn't done their due diligence or frequent reviews for the Carillion contracts.

If what you say is correct and Carillion are bailed out, then logically this could encourage other companies to bid low for tendered work, knowing they will win the tender then make losses...safe in the knowledge that they will likely be bailed out by the taxpayer.  Not an option  to  bail them out, or at least it shouldn't be.

And yet as Dax H has pointed out in his post from a credit risk perspective it was known that the concerns were there! 

So the market does work. Some suppliers / customers will have acted on that info. Some will have not. Just like any other company that gets into difficulties. Ignorance or making the wrong decision about your trading relationship  with them is no commercial excuse.

Well as they are a social care home company, Pfi is not the issue. Thousands of orderly people in care homes if it goes to the wall is probably more important. 

In the press it states that the crown agent for Carillion had not been in place for a couple of months. Possibly a factor .

Possibly - but can those losses have developed over the course of just a couple of months?

Hmm... it doesn't happen that often: 

"The Companies Acts and the Insolvency Act 1986 (IA 1986) create what some may consider to be a surprisingly large number of criminal offences.

However, a large proportion are rarely prosecuted, with authorities generally preferring to pursue civil remedies as opposed to launching criminal proceedings."

From this page: http://blogs.lexisnexis.co.uk/randi/trends-in-the-prosecution-of-directors/

More details there if anyone's interested.

It seems that Carillion were audited a few months ago and no issues raised. 

http://www.telegraph.co.uk/business/2018/01/15/carillion-auditor-kpmg-faces...

Be interesting to see what happened there. I thought accountancy practices were supposed to have been tightened up post-Enron?

They are faceless and the people who run them, take bonuses etc, make personal fortunes etc walk away with their lovely homes and Maybach's etc intact when the shit hits the fan and the people who graft to make that money end up shafted, homeless, etc

You’re are completely missing the point. How can you say the market works when someone takes a risk, and someone else who had not asked for any of it pays for it ?

I did not choose Carillon, I did not put my money in it, I did not deal with them. I did not have my money in RBS, or Lloyd’s, etc etc 

So why do I have to pay with my taxes every time for the mess they leave behind ?

They take the risk, and I pay for the consequences. Dont you see a fundamental problem with that ?

Uoto a point I get what you are saying. But if every large business that failed was taken over by the taxpayer that would probably be unsustainable or desirable .

What next Debenhams or H & M as they are big employers with supply chains?

or are they not important ?

What is it about repeated economic failure that english tory voters find so irresistibly appealing?

Where did you see I wanted them to be taken over by the taxpayer ? I don’t. I just don’t want to pay for the risks they take. I don’t really care how we achieve that.

For example we could simply make a list of systemic risk companies, and if you are on that list you’ve got extra conditions. You need to pay into some kind of fund, or you are forced to have capital buffers, or the state can tell you what to do, or something of the sort, I don’t really care how as longs a it works.

They are, it’s just that when they fail I don’t want to pay for their failing pension scheme, for example.

I thought pensions had been protected since Maxwell, but it doesn't seem to stop people losing money. I speak from experience where a previous employer kept back the pension contributions, including my AVCs. I never saw that money again.

Do they?

Looks like they won’t be getting anything at all. 

Companies are audited on a regular basis. What exactly do you think can be done extra?

The question is; why did the auditors not pick this up if it was so obvious to everyone else?

Or are we looking at a mass hindsight bias?

Debenhams and H&M don’t have a £5bn annual turnover. 

I’d be interested to know how much is owed to Carillion as part of this £199bn pfi that the government owes. What happens next?

What's happening to all the massive infrastructure projects that Carillion were involved with  - e.g.  HS2 and Crossrail? Apparently they have stopped work; this will be adding literally millions for every week that there are delays, as all associated activities grind to a halt, momentum is lost, materials and goods get stolen, key staff start work on other projects...

Maybe we could just scrap HS2 for starters.

That will be decided when they appoint administrators. HS2 is being underwritten by the government so I’d expect that to be ring-fenced into a company “HS2 Carillion - in administration” and made ready for a buyer as soon as possible. 

Very well but you can audit all you want, the auditors can just point out the risk, which is something they don’t necessarily have an incentive nor the requirement to do.

As I suggested, if a company is so big and systrmic that it is likely that the state would have to intervene to pick up the pieces if it fails, then we put them on a list, and those on that list are slapped with extra regulations. For exemple, mandatory reporting, capital buffers, mandatory risk management framework, personal liability for management... whatever works best.

That seems fair to me. What is not fair is to ask people to pick up the tab for the realisation of risks they have not taken.

For disclosure I wasted two years of my life at Deloitte. Based on that anecdotal experience, I can say I am not entirely surprised.

In these firms your incentive is to maximise billable hours, and it doesn’t always align with doing a good job and tell people what they don’t want to hear. And the customer doesn’t care, they are only interested in ticking the boxes and making sure they have someone to blame.

Probably that as well.

They have a hell of a lot of  employees and their combined turnover is pretty close. Their closure will have a further dire affect on the high street. 

Debenhams turnover is £2.3m that’s not even 0.005% of Carillion’s £5bn. 

H&M are Swedish and I can’t see any reports of them being in trouble. 

Debenham's turnover is £2.3 billion.(2016/7)

H&M's are about £1.7 billion (2016)

Special circumstances for the largest of the large would be a very good idea, as would penalties for the auditors if they declare all is well when it isn't.