It has been hard to avoid the news this week of Carillion group companies going into liquidation after rescue talks at the weekend failed to reach a solution. The long term impact of this cannot be understated and is only just beginning to be felt throughout the public and private sector.

In the public sector, Carillion is a major construction contractor, underpins numerous PFI schemes and provides a wide range of public services to schools, local government and NHS bodies.

Our public sector clients are already looking at alternatives for their contracts – in a liquidation scenario the official receiver will not be looking to continue the business but to sell off its assets to pay creditors. For this reason, at some point in the near future, contracts will come to an end and alternative service providers or construction contractors will need to be found to service those existing contracts.

Typically, the type of public sector contracts which Carillion services are complex, large and over-threshold for procurement purposes. Replacing them at short notice could therefore be problematic in a situation where compliance with the Public Contracts Regulations 2015 is needed.

Fortunately the 2015 Regulations provide an option for this situation – under Regulation 72 a new contractor can replace an existing contractor where that new contractor effectively “steps into their shoes” AND fulfils the selection criteria initially applied in the procurement in the SQ/PQQ.

Note that this is replacement of the contractor on the same terms as the outgoing contractor – Regulation 72 does not allow an entirely new contract to be entered into on alternative terms and/or for a longer duration. There can be no “substantial modifications” to the contract.

Alternatively Regulation 32 does allow for direct award of a new contract without an OJEU advertisement in situations of urgency but this is likely to be interpreted narrowly by the courts and the award should therefore be for no longer than is reasonably necessary for the public body in question to carry out a fully compliant procurement procedure for the longer term requirement.

Practical tips:

  • Review your contracts – can you terminate now? What is the notice procedure?

  • Invoke exit plans under the contract where possible, including knowledge transfer, verifying payment status and amounts owing, obtain asset lists and employee information for future tendering purposes.

  • Consider procurement options – can you use a framework for a quick and/or short term replacement provider?

What will become of the existing contracts and assets owned by Carillion remains to be seen and until more is known in many cases this will remain “business as usual” but this should not stop public bodies making plans now for contingency measures as replacements will be needed at some point.