Subbies exposed to ‘huge risks’ as cash crisis hits majors

Fresh warnings about subcontractors’ ability to weather the cash crisis engulfing firms such as Carillion and Interserve have been issued by one of the leading associations representing specialists.

Earlier this week, Carillion raked in the first £50m chunk in a disposals programme it hopes will bring in £300m by the time it wraps up the firesale at the end of next year.

Analysts are predicting Interserve, which last week said it was likely to breach its banking covenants for the year, will have to sell its £224m turnover RMD Kwikform formwork and ground shoring business. The sale would help bring down debt after the firm admitted it will have to fork out nearly £200m in provisions for a string of problem energy-from-waste jobs.

Now the chief executive of the Specialist Engineering Contractors’ (SEC) Group Rudi Klein has told Building that the cost blowouts at the pair – Carillion has already announced more than £1bn in provisions for bad jobs – mean the industry is “facing possibly the biggest financial crisis I have seen in 30 years”. He added subcontractors needed to be on their toes to make sure they don’t get caught up in any payment problems: “I would advise them to be looking out for signs such as slow payment processes and an increase in contra charges […]

“My advice to them would be to chase every penny at the earliest convenience and make sure payments are made on time. In a situation like this, if you are waiting 120 days for a contractor to pay you, then you could end up in dire straits.”

Klein also complained that not enough was being done to fix the problems at Carillion and Interserve. “The industry finds itself in an extremely unhealthy place. There appears to be a lack of leadership around how it can address this crisis.”

In the summer, the SEC sent a letter to business secretary Greg Clark warning that “thousands of smaller companies and subcontractors [are exposed] to huge risks” if main contractors run into the kind of problems that have hit Carillion.

The group’s chair Trevor Hursthouse said the slow payment culture means suppliers “effectively fund many construction projects” and Klein said SEC members had reported “increased incidences of [firms] holding back money”.

Carillion has previously said: “We value the close relationship we have with our suppliers and we continue to be committed to business as usual with all of our partners and suppliers, including adherence to all payments terms.”

The firm said it was planning a series of disposals, including parts of its Canadian business, over the next 15 months. This week’s deal with Serco for its FM healthcare business covers more than 50 NHS sites and includes five acute hospital trusts.