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“Inadequate” Government Scrutiny to Blame for Carillion Crisis

Carillion was subject to “inadequate” Government scrutiny, according to the UK’s longest-ever serving auditor general.

 

When the construction giant collapsed back in January, it left tens of thousands of small businesses out of pocket. Hundreds of public contracts were left uncompleted and the whole construction industry was left reeling. The collapse of such a prominent figure in the industry thrust construction into the spotlight, with payment practices and business relations heavily scrutinised. The subsequent outcries of supply chain bullying, extended payment terms and late payment painted a less-than-positive picture of the sector, demanding immediate reform.

The late payment culture has not been easy to dismantle. The government has launched various initiatives but they have not yet gone far enough. The Prompt Payment Code, for example, swiftly fell out of favour when Carillion collapsed; later found to be one of its signatories.

The major riddle concerning Carillion is why the government was supplying contracts to a company who had issued profit warnings and who were so clearly in financial distress. In a recent Dispatches investigation from Channel 4, auditor Sir John Bourn expressed his “anger and disappointment” at the government’s soft treatment of Carillion. He declared his disbelief at why the construction giant was given so much work when it was so clearly in trouble.

Carillion’s size and prominence within the sector was no doubt a dominant factor in the government’s passivity. Sir John Bourn even likened the collapse to a ‘Ponzi scheme’ where small contracts were being used by the government to keep the larger firms going.

 

Last month, a Commons select committee said the dramatic collapse of a large outsourcing company such as Carillion “could happen again” unless “lessons are learnt about risk and contract management and the strengths and weaknesses” of the outsourcing sector.

The government’s failure to keep tabs on Carillion’s behaviour led to the company’s downfall. Whether you are small or large, retail chain or independent, old or new, it is vital that the financial behaviour of customers and suppliers is scrutinised. No-one is exempt from failure.

At the Credit Protection Association, we champion credit monitoring. We provide our Members with comprehensive online credit reports and company databases, offering credit ratings and County Court Judgment data on millions of businesses across the UK. These credit checking facilities allow our Members to immediately establish past failures and assess the risk of these being repeated.

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