Carillion’s Collapse. Let’s learn lessons from this failure.

Carillion’s collapse: Project Compass director Russell Curtis has called in ‘Let’s hope the lessons of Carillion’s failure will be learnt’, (AJ 17 January 2018) for “a more diverse supply chain to avoid another Carillion catastrophe, so we can face a future with a diverse, specialist and varied supply chain, which matches projects with proficiency and project scale with practice size.”

The growing crisis within the building industry shows that the driving policies and practices which are aggregating contracting into ever larger private contracts is simply failing, from the Edinburgh Schools fiasco, Grenfell and now Carillion’s collapse.

In UK procurement far practice greater regard now needs to be placed on the available provisions within Directive 2014/24/EU and the Public Contract Regulations 2015 (noted in the informative below).  These provisions have to date been in effect disregarded in procurement within England.

Carillion’s Collapse

But Carillion’s collapse will most likely also have a devastating impact on a multitude of small sub-contracting firms and suppliers across the country, including architects.

But if payment security had been in place most of these anticipated losses would have been largely avoidable as money could have been secured.  This would have also better served to secure work flows better with less disruption through any administrative process.

Project Bank Accounts

Project Bank Accounts (PBA’s) provide such payment security. They ring fence funds for project payments in a client funded trust account, held independently of the main contractor, with payment cascaded out when work is discharged. PBA’s have been allowed within all public contracts since ythe transposition of Directicce 2014/24/EU & PCR 2015.  Scotland (for contracts above £4m), Wales and N. Ireland (for contracts above £2m) have now mandated their use and Highways England have adopted them.  However many may now ask why the use of Project Bank Accounts was not mandated across England, where there use has only been a ‘recommendation’.

Essentially the unfair apportionment of a contracts risk down through the multitude of small scale suppliers and sub-contractors, has been shown to leave those at bottom of this feeding chain more likely to be destroyed by such lack of payment.  It is these many smaller companies, the bedrock of the UK construction industry that may now go to the wall.  We have no doubts this could have a prolonged impact on industry capacity and skills.

RIBA adopted Project Bank Accounts in its procurement policy recommendations ‘Building Ladders of Opportunity’ in 2012 (1.2.5). It is now to be hope that with the support of members the institute will join with all other industry representatives in seeking there mandatory and early adoption.

Retentions Protection Scheme

With Carillion’s collapse retention payments withheld – as security in case of defects – will also have been lost. The Parliamentary Bill from Peter Aldous MP which passed its first hearing earlier this month for a Retentions Protection Scheme, modelled on the rent deposit protection scheme, is therefore equally important. Details here.

Project Compass call on Parliament & Government

We therefore call upon all construction design professionals to petition their parliamentary representatives and call upon Parliament and the Government to:

  • Support the Construction (Retention Deposit Schemes) Bill known as the ‘Aldous Bill’ which passed its first reading on 9 January 2018
  • Legislate to require that PBAs are put in place for all construction works in England over £1 million.
BESA Building Engineering Services Association survey Jan. 23, 2018

The Building Engineering and Services Association (BESA) and the electrotechnical engineering survices trade association (ECA) survey of January 23, 2018 gives an early indication in this infographic of the scale of the problems now faced.

Informative: From the Public Contract Regulations 2015.

Under Regulation 46.(1), (2) and (4); contracting authorities may decide to award a contract in the form of separate lots and may determine the size and subject-matter of such lots; Contracting authorities shall provide an indication of the main reasons for their decision not to subdivide into lots, which shall be included in the procurement documents or the report referred to in regulation 84(1); Contracting authorities may, even where tenders may be submitted for several or all lots, limit the number of lots that may be awarded to one tenderer, provided that the maximum number of lots per tenderer is stated in the contract notice or in the invitation to confirm interest.

The division of contracts into more numerous lots is also a material consideration in the UK for improving social value and economic sustainability under The Public Services (Social Value) Act 2012.