Carillion had around 450 public contracts for services and infrastructure – including hospitals, schools, prisons, and transport. Rhiannon Holtham, from our Construction team, explains what this means from a procurement perspective.
Now, the government will either take these contracts in-house, or award them to another contractor. Alternatively, the contract might continue without Carillion (like with Kier and Eiffage’s joint venture for HS2).
The government will have to make sure that any organisation they appoint has adequate resource to carry the contract out – and is financially able to cover the risk of going out of business.
Organisations that follow formal procurement regulations can – legally – request this information at the selection stage of a procurement process. Tender processes in the private sector can, too, although the organisations involved won’t be subject to the same strict regulations.
But, what protection is there once a contract is awarded?
Well, not all contractors are publicly listed companies (with the reporting requirements Carillion had). Their financial position might become significantly less visible after they’ve been awarded a contract. And, once a contractor is in place, and performing services, awarding organisations are often reluctant to pull the plug – just in case the contractor can resolve its financial difficulties.
Organisations awarding contracts should consider:
- What other contracts is an organisation taking on? Have they over-committed themselves?
- Several contractual provisions, requiring:
- ongoing reporting on the contractor’s financial and economic standing
- security requirements (bonds and guarantees)
- a robust contractual structure including collateral warranties and step-in rights
There are lessons to be learnt from the impact Carillion’s liquidation has had on contracts. All organisations will need to make sure that they have the right safeguards are place – in their contracts, or in procurement processes – to minimise damage if, and when, this situation happens again.
Please contact our Construction, Energy and Projects Team for advice on how best to protect your position by emailing firstname.lastname@example.org . We can provide advice on your procurement strategy, the procurement process and appropriate contractual provisions.