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The Carillion crisis must lead to reform

The Carillion crisis must lead to reform

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Anyone in industry, government or the client community who is surprised that a giant main contractor has gone bust, hasn’t been paying attention. The signs, and the warnings, have been there for many years. We don’t yet know the half of where this might lead, but right now it’s desperately bad news for many subcontracting firms and employees.

There seem to be two types of UK construction, operating in some sort of quantum coexistence. One is a best practice industry - forward looking, digital, and full of productive partnerships with supply chains. It’s marvellous but too often, disappointingly virtual. Where it exists, it’s in staggering contrast to the prevailing, everyday reality of exposed supply chains, not just in construction but across the service industries, and punctuated by upstream insolvencies. In the case of Carillion, the insolvency happens to be truly massive.

This crisis is one that we must not waste, even if past experience suggests there are too many who are prepared to do just that. There are a good many ways to improve construction, but the industry needs to get the basics right first if it is to survive, grow and deliver clients with the value they seek. This means subcontractors - those who will ultimately provide the skills, growth and innovation we are all looking for - need statutory payment protection, not just for occasional protection from upstream insolvency, as with Carillion, but to support everyday operational efficiency and growth.

This means it’s time to introduce legal limits on payment terms, for retentions to ring fenced in trust (on the way to speedy abolition) and for the public sector to simply not procure any more from management contractors who don’t use who don’t pay promptly, or who don’t use project bank accounts.  The industry could use all these tools as the firm foundation for change, and success, and – along with the measures advocated by Farmer in ‘Modernise of Die’ – they should be a key part of the new industry/government ‘sector deal’. At an emergency meeting on the 15th January, Business Secretary hinted that the ‘deal’ could well be the vehicle for reform.   

The alternative is not just what we see now, but more of the same.  Right now, the important task is to help those who are impacted by the collapse of Carillion, but going forward we need sensible, pragmatic legislation that will protect the supply chain and allow it, and our industry, to deliver what clients and the UK economy really need.