Leader: Carillion's hubris

Fifteen years ago in April 2003 I sat down with John McDonough for his first interview since taking over the Carillion hot seat from Sir Neville Simms. He was in a bullish mood that day and the irony, in hindsight, is striking. “Just because companies in the services sector working on PFI contracts are not doing too well, the PFI process should not get the blame – that’s just bollocks,” he said.

“The market gets jittery and it affects everyone. If there’s a story in the press about how badly a particular company is doing, and they do PFI work, it becomes a PFI story. That’s what’s wrong – it should be about how that company is handling the PFI process.” You wonder if he still feels the same today. McDonough went on to explain that he wanted to turn Carillion around from a slow moving contracting tanker to a “speed boat” specialising in support services. It became a joke in the quarterly results sessions that he would declare Carillion as no longer “a builder”. PFI was McDonough’s number one game.

Long-term lucrative projects, relatively lower risk, certainty of payment and he’d leave his traditional rivals to slog it out over the big one-off contracting projects or high-risk mega infrastructure projects where you could lose your shirt in a flip of a pen. And that wasn’t all: the risks were magnified, as the unions were on the march at the time; there was trouble everywhere. 

PFI was McDonough’s number one game

McDonough, meanwhile, was grooming a young executive named Richard Howson for the top job. An old-school construction man, Howson was rising through the ranks fast. He had a reputation for delivering on commercial projects and then, notably, on Dartford’s PFI hospital. An ambitious company man, Howson fitted the “rising star” billing perfectly, having worked from the ground up; he could talk to people from sites to the boardroom. Tough, fair, but always with one eye on who he could influence. And it was a story that resonated with the City. Following a spell abroad running Carillion’s Middle East operations,

Howson made his big return and with McDonough running out of steam and wanting to move on, his apprentice’s coronation was inevitable. The City lapped it up. It should have been a golden time – it still should be. The subsequent course of events under Howson’s leadership is now being thoroughly examined and documented by investigators and the press alike. But when you read Joey Gardiner’s analysis, you’ll find that this is not just a story about Carillion’s management or corporate failure.

Ultimately, however, the changes that will inevitably come will have to be enshrined in law

This is about industry failure. It’s about the inability of specialist pressure groups and the government to stop Carillion moving to 120-day payment terms. Or implementing an onerous supply chain financing scheme. It’s about small companies at risk of going bust and having to lay off workers. And it’s about who else is putting pressure on suppliers right now and what the government is going to do about stopping it. The only way, by the way, is through the law and through reform of procurement. It is still fine for trade association bosses to make such issues transparent, but they need to call out their own members too – and do it now, not after such a monumental event as Carillion’s collapse. That would be a sure sign of a cultural shift. 

Ultimately, however, the changes that will inevitably come will have to be enshrined in law, beefing up payment security and procurement (read Rudi Klein on this).

This week's poll: Could a 30-day payment system for contractors/subcontractors be effectively regulated by government?

— Building News (@BuildingNews) January 25, 2018

We’ve been here before but it’s never gone that far. We’ve had the government reports. We had the late Sir Michael Latham revolutionise thinking by suggesting partnering and mediation. It attracted a lot of attention with some forward-thinking developers adopting new models.

We also had Sir John Egan’s lessons from outside industry looking at innovation and best practice in the motor manufacturing sector. Then there was Paul Morrell’s public sector efficiency and cost drives and BIM disrupting everything. The government became, or so we thought, an intelligent client. And we had Peter Hansford’s look to the future with his flimsy if worthy Construction 2020 effort, noting green targets and focusing on sound bites such as “exporting” and “digital”. 

Just as Mark Farmer warned the industry it must “modernise or die”, Brexit happened, and the challenges to our industry only intensified after the disaster at Grenfell. As if that wasn’t enough, over the coming months we’ll have the results of a forensic analysis as to why Carillion failed. But if you read Kevin McLoughlin’s story in the news analysis, you will find a whole load of pain being caused by both PFI accounting and the way Carillion “handled the PFI process”. Never mind what John McDonough thought, that certainly was “bollocks”. It’s time to change. More than time.