Following recent media reports, with effect from Monday 15 January 2018 the Official Receiver has been appointed liquidator of a number of Carillion Group companies (Carillion Plc, Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited). The Official Receiver will be supported by a number of Special Managers from PwC. Further information regarding these appointments is available here.
This is a significant event for the UK Construction sector and we anticipate the knock-on effects for the industry will be considerable. In the short term, Government funding will enable the Official Receiver to maintain Carillion's public services and its own Joint Venture partners will continue with its many substantial infrastructure projects. However, there will be far-reaching consequences for all of those involved with the operation and management of Carillion's contracts, both in the public and private sectors.
For those who employ Carillion in the private and public sectors, there will obviously be a period of uncertainty while the future of Carillion's projects is determined. For employers and developers who may be affected the following issues should be considered:
- Review your contract(s) your rights to suspend or terminate the contract on grounds of contractor insolvency. The terms of these contracts will be key.
- Ensure you understand the extent of both your continuing obligations to carry on and complete works/services and notify funders.
- How the insolvency of Carillion may impact on your funding arrangements.
- How the development will be finished - check your contracts to understand how quickly you can get a new main contractor on board.
- How you might directly engage any of Carillion's sub-contractors and/or ensure that sub-contractors are novated to any new contractor.
- If there is a public or PFI element to your project, consider the impact of the Public Procurement Regulations 2015.
- Whether to notify your insurers – bear in mind that any failure to do this in a timely way could prejudice your insurance cover.
- Check Collateral Warranties are in place from relevant consultants and subcontractors or, where third party rights have been granted under the Contracts (Rights of Third Parties) Act 1999), notices granting such rights have been issued.
- Check the status of Advance Payment Bonds, Performance Bonds, Vesting Certificates and any other security.
- Conduct an audit recording the status of the works and all on-site plant, equipment and materials and ensure security measures are in place.
- Ensure insurance is in place for the project and existing obligations under the contract have been complied with.
- Ascertain copyright and design rights and obtain drawing and design information as far as possible from Carillion, Consultants and Subcontractors.
- Verify the amounts paid and the status of the account in terms of any overpayments, right to set-off and retentions.
Where Carillion has long term services and facilities management obligations, careful consideration will also be required as to how those obligations are going to be fulfilled in future. The position the Official Receiver and his Special Managers will adopt in respect of those obligations is likely to develop in the short term and further clarity will be required.
For members of Carillion's supply chain a period of uncertainty is likely to follow. Many will be anxious to protect their businesses and their exposure to non-payment for works and services that have already been performed. If you are affected then some or all of the following issues should also be considered:
- Again, ensure you understand the extent of both your continuing obligations and your ability to suspend or terminate.
- Continue to comply with your own downstream payment obligations - make sure you understand how this may impact on your own obligations to make payments to others and ensure that all necessary notices continue to be issued correctly and on time.
- Take reasonable lawful steps to secure your site resources and/or any plant or materials, whether fixed or unfixed, for which you have not been paid.
- Ensure that you keep good physical records showing the status of the works you have completed to date on behalf of Carillion.
- If the loss of any existing contracts with Carillion are likely to cause financial difficulties for your own business in the future, we recommend that you seek early advice.
We understand that this announcement will be a cause for concern for many of our clients and the situation will continue to develop over the coming days and weeks.