Carillion going into liquidation is a disaster for the construction and property industry.
Putting the company itself aside, the collapse puts thousands of suppliers at risk, from SMEs who may have Carillion as their only client through to larger consultancies and contractors who's own supply chain will be impacted as well. The knock-on impact will be devastating.
After reading reports and commentary from industry press (Construction News has some good coverage) and main stream media, understanding how the company has got to this position is not easy to unravel. But what is concerning is that Carillion continued to be awarded contracts in the public sector despite it's woes.
All public procurement includes an assessment of financial stability, but more often than not the assessment is high-level, looking at general financial position and not including other information available publically but not specifically included in the assessment criteria.
It is this gap between box-ticking and due diligence where Carillion slipped through and continued to secure work with HS2, UK Government and Local Authorities whilst being publically acknowledged as being at risk.
The challenging thing facing procurement teams is that, whilst this should be a wake up call, the rules and culture around mega-supplier contracts mean things may not change.
Procurement teams face a tough challenge; they can only assess what they've asked for and must assess all bidders on the same criteria.
A lot of authorities take months, if not years, to develop a standard PQQ which is acceptable for their lawyers and the senior management team within their organisation. As such, changing, altering and developing these assessments introduces a significant risk of challenge, particularly by large suppliers whose legal and procurement expertise is likely more extensive than the client themselves. Procurement teams naturally must balance this risk, and more often than not falling back on standard operating procedures means they're protected from scrutiny and challenge within procurement activities.
In the operation and management of mega-supplier contracts, procurement teams / category managers face the challenge of navigating large, multi-touch point relationships where suppliers can leverage their position to balance well and under-performing contracts. It's a difficult balance to find, with category managers tasked with holding suppliers to account, whilst senior officials are looking to leverage larger relationships and may not want to rock the boat on the small issues.
In my opinion, this can breed a scenario where clients are unable to properly scrutinise and challenge over fear of losing or impacting on larger relationships and contracts they have with those suppliers.
Ultimately, when people ask why were Carillion able to continue to win work despite their situation, the finger naturally ends up pointing at procurement. So will the procurement teams in public procurement learn from the Carillion collapse?
Possibly, but the entrenched processes and cultures that led to this crisis won't change overnight.
Just as constructors, consultants and the supply chain are being challenged to Modernise or die by Government, the public sector too needs to radically improve how it procures and manages mega-suppliers in order to protect the public from further disasters.
Construction giant Carillion is to go into liquidation, threatening thousands of jobs. The move came after talks between the firm, its lenders and the government failed to reach a deal to save the UK's second biggest construction company. However, the government will provide funding to maintain the public services run by Carillion.