It’s Wise Up Wednesday: Recklessness, Hubris and Greed…

They sound like characters from one of Grimm’s Fairy Tales don’t they?

Sadly, they are used to describe the way Carillion’s directors ran their business, as set out in a damning 100-page final report from the parliamentary joint pensions and business committees that has laid bare the directors’ failings.

This weeks’s Wise Up Wednesday is inspired by the fact that time and time again, Specialist Contractors are getting shafted by firms run like Carillion was!

A Rotten Corporate Culture

Carillion’s board presided over a rotten corporate culture and were responsible and culpable for its costly collapse with liabilities of nearly £7billion.

Carillion’s spectacular fall was brought about by recklessness, hubris and greed, said watchdog MPs.

Directors pursued a relentless dash for cash, driven by acquisitions, rising debt and exploitation of suppliers with at best questionable accounting practices that “misrepresented the reality of the business”.

Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses.

An Unsustainable Business Model

The report said Carillion was unsustainable and the mystery is not that it collapsed, but that it lasted so long.

Carillion’s directors elected to increase its dividend pay-out every year, come what may. And even as the company began to crumble the board was concerned with increasing and protecting generous executive bonuses.

Long term obligations, such as adequately funding Carillion’s pension schemes, were treated with contempt.

The directors’ aggressive accounting practices, described by one major shareholder in Carillion as having “no place in a healthy audit”, are highlighted by the case study of the Royal Liverpool Hospital.

A November 2016 internal peer review of the hospital contract reported it was making a loss.

Carillion’s management overrode that assessment and insisted on a healthy profit margin being assumed in the 2016 accounts.

The difference between those two assessments was around £53m, the same loss included for the hospital contract in the July 2017 profit warning.

Hiding The Truth – The “Early Payment Scheme”

Maintaining stated contract margins in the face of evidence that showed they were optimistic, and accounting for revenue for work that not even been agreed, enabled it to maintain apparently healthy revenue flows.

It used its early payment facility for suppliers as a credit card, but did not account for it as borrowing.

MPs said the only cash supporting its profits was that banked by denying money to suppliers.

Whether or not all this was within the letter of accountancy law, MPs accuse Carillion of intending to deceive lenders and investors. It was also entirely unsustainable: eventually, Carillion would need to get the cash in.

The group collapsed owing around £2billion to its 30,000 suppliers, subcontractors and other short-term creditors.

Like the pension schemes, they will get little back from the liquidation.

Creditors have been told they are likely to get back less than 1p for every £1 they are owed while taxpayers face at least £150m in costs associated with the liquidation.

Please Make Sure You Protect Your Business

So, there you have it, the whole sorry mess exposed for what it is. A disgrace, and a nightmare for all those unfortunate enough to be caught up in it!

And some very real reasons why you must be extremely careful who you work for, certain what basis you are working on, and you must take action if things are not going well.

With the right assistance and application of the right principles at the appropriate time, you can make sure you protect your business!

I have been assisting Specialist Contractors just like you, to resolve commercial and contractual problems for the last 28 years. And, has been providing services to improve the lives of our Buddies (members) for the last 10 years.

We are pretty confident that we can help you, so please feel free to call any time. Initial advice is free, subject to you meeting certain criteria.

Thanks and best regards,


P.S. Please remember that we are here to provide solutions exclusively for Subcontractors. If you want access to professional solutions that work, then please give us a call on 01773 712116, or email today.

Share this

Become a Streetwise Buddy

Construction’s a tough place to do business right now, and Specialist Contractors need all the help you can get. That’s why you will find our resources and expertise are invaluable, whatever the size of your business and whatever your specialisation. We’re here to help you solve all your business problems, including the crucially important contractual ones, such as getting paid.

What Our Buddies Say ...

  • /

streetwisesubbie Ltd
17 Ilkeston Road
DE75 7DR

Helpline: +44 (0)1773 712116