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Ex-Carillion boss: Payment problem starts with government

12 July 2018 | By Neil Gerrard

Richard Howson

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".

Howson's comments came in a letter to the Carillion Joint Inquiry, in which he questioned the validity of its final report into the contractor's collapse and argued that the government as well as those in charge of the company in the final months before its demise deserved more of a share of the blame.

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."

Comments

I really do think it is time to bring back "the PQS". In times past a Contract consisted of the Client on the one side (with his employed Architectural and Engineering advisors and the Contractor on the other. The contract was completed with an accepted monetary offer to complete the works in an agreed time period.

The Contract empowered an independent Quantity Surveyor to administer the Contract. Specialist (Sub) Contractors were either chosen by the Contractor or Nominated by the Client with the exception that those so nominated were in a contractually stronger financial position for the QS had the authority to see proof that they had been paid for all previously authorised payments. Had they not, the QS could deduct such monies from the contractor's future payments and pay the specialist direct.

At all times the PQS acted as a quasi arbitrator or adjudicator and could be accused of professional misconduct in the event that he did not act fairly. The Client was obliged to pay what he was instructed to pay by the PQS.

Contracts invariably ran smoothly unless one or more of the parties to the contract acted in a manner contrary to its intent. Disagreements did of course occur but an honest PQS was invariably able to distinguish between what was a reasonable claim or variation cost and what was not.

Under the current construction contracts each tendering contractors has to undertake the work originally carried out by the PQS whose work at pretender was given to each tendering contractor - the cost implications obvious - and it is no wonder that short cuts are taken in assessing the pre construction value of the work, both under-pricing and overpricing is commonplace and the hurdles contractors are expected to jump over before even being invited to tender are ridiculous just to keep blameless the poor sod on whose decision it rests on whom to place the order with.

PHILIP EARWICKER MCIOB, 12 July 2018

I think this is more smoke and mirrors from Carillion top brass. I have worked in outsourcing, predominantly in government contracts, Since 1995 until I retired in 2018. The secret to securing payment, including dealing with variations is to be clear, open, and honest, and to provide the necessary detail to support the case. I did not experience the sort of problems that Howson alleges.

Michael Ian Watts MCIOB, 12 July 2018

That's a complete load of nonsense from Howson. I was a Director at Carillion for 3 years after the takeover of Mowlem and the message was "Can't pay, won't pay". The whole culture was about overbearing central control (from Wolverhampton) of all the levers of management except delivery (The difficult part!). It was a Soviet command and control business model which sought to destroy any personal decision making by individual managers and directors. Consequently clear truths, common sense and factual reporting were non existent. Most Mowlem staff left in the period 2006-9, as having been brought up in a business where to be technically proficient, skilled and highly motivated by Project success was the key to advancement, we couldn't work in the grey, never pay, corporatist Carillion.

Gareth Davies, 13 July 2018

What a poor ending for the remains of the portion of the Wimpey empire sold to Tarmac Which in turn sold a very profitable portion of their operations in the various forms of the aggregate business to focus on the traditionally low margin service industry and risky general contractor in often poorly scoped and designed building contracts.

roger ward, 15 July 2018

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