After The Carillion Collapse: Who Is To Blame?
Content adapted from this Zerohedge.com article : Source
Submitted by Bill Blain of Mint Partners
"Look back at the past and the changing empires that rose and fell, and you can foresee the future…."
Why and How did it happen? And who should we blame?
Welcome to the X-Factor Economy: Carillion, once the darling of infrastructure, is exposed as a debt-addled fraud.
Shock! Horror! Tabloids full of "Carillion executive ate my Hamster" headlines. Brek-Drek morning TV is full of insights: the tragedy of small local suppliers likely to suffer enormous losses as invoices go unpaid, starving schoolkids as their lunches don't turn up, prisoners running amok because their guards have been sent home. Hospitals half finished, train-tracks un-laid, and a government follolopping around like a fish out the water. (Again.) Even the banks elicit some sympathy for the losses they will suffer.
Someone has to take the blame – and Theresa May's hapless government is the obvious target.
Whoa. Steady. Step back. What you pay for, you get.
Don't bleat for the financiers. Carillion has been a massive short across the smart money for ages. Don't bleat for the banks who are fully provisioned. I do feel a tinge of sympathy for the German investors sold the firms Schulschein private placements.
Why did it happen? Over the past 5 years Carillion has taken revenues of some $20 bln from Government contracts. Despite paying its 13 layers of management and sales teams handsome salaries and bonuses, and awarding its owners inflated dividends, the company's pension fund is left massively underfunded, and the firm was about financially stable as a chocolate teapot. (As bonds yield rise that pension deficit would lessen – but too late for the 20k Carillion employees in the UK who are now consigned to the Government scheme.)
There is a great quote from Julian Assange, that well known Ecuadorian, on corporate collapse: **"When Enron collapsed, through court processes thousands and thousands of internal emails came our, and it provided a window into how the whole company was managed. It was all the little decisions that supported such flagrant violations." **I can't wait to learn how Carillion won its business….
And, government knew all about what was happening. They were collectively complicit – but were happy because Carillion apparently delivered Rolls Royces at Mini prices. Government ministers could happily preside over the ribbon-opening of a new hospital pontificating platitudes about value-for-money, budget responsibility, and value for tax-payers. Utter bllx.
Despite watching the company gorge and fatten from the contract trough, and stumble into increasing debt, the government continued to award them contracts. Outsourcing became a mantra of government efficiency. Carillion embraced the need. It ate itself on increasingly less lucrative contracts and increasing debt.
Of course, you could blame the civil servants who approved the contracts. Civil servants on massive pension guarantees (paid by our taxes) were quite happy to do their job – which was awarding contracts to the cheapest bid and going out for regular and expensive dinners with the Carillion bid teams to "review contracts". Due diligence means cheapest. But, they appear to have paid absolutely no attention to ability of the contractor to actually deliver or opine on its financial prospects.
In this modern World we need know who is responsible.
More to the point, what happens next? In the short-term – and I mean the next 48 hours – civil servants will "courageously" and "tirelessly" scramble to cover Carillion contracts, and cover up their tracks. I hear they are sending firemen to ensure kids get fed this lunchtime. But guess what? All these busted contracts won't be replaced at low-ball bid levels. The new providers will charge real money – and mark 'em up a bit/ a lot. Government officials will attempt to justify the hit to the public purse. Civil servants "can't possibly comment." Inflation will rise as service costs go up. Unhappy electors will moan a little bit more.
There are some £28 bln of future government contracts up for grabs by the next Carillion. These need to be reviewed. Strip out the numpties that award them, and the nonsense of giving them to the lowball bid. Real contracts are great for the economy – providing real trickle down to contractors, staff up-skilling and honest returns. Award contracts on the basis of ability, quality and deliverables. Watch productivity go up, and the infrastructure base of the economy move from barely satisficing to genuinely good.
Meanwhile. Let's find someone to shoot! And speaking of chocolate teapots, it might as well be the Prime Minister. A bit of creative political destruction might not be a bad thing. If it wasn't for the fact an election would make Brexit even more messy and uncertain, and a few years of Corbyn might prove too many, why not? Time to press the reset button. It might be a darn good thing for May and the rest of the Tory dinosaurs to tumble into the political abyss, giving the opportunity for the smart young mammals of the party to float to the surface..
Meanwhile, I really ought to be talking about market stuff – like inflation, rising bond yield prospects, oil prices rising but looking toppy around $70!, rising global growth forecasts and all that stuff. Or, why Asia is so strong this morning, as Japan closes on yet another high. It can all wait for tomorrow.
Funny.
It never ceases to amaze how a completely private entity goes caput and the public end up paying money.
The whole point of outsourcing is increasing flexibility and reducing risk so why one private company collapsing would make everyone look for someone to blame inside the govt is beyond me.
I guess the piece of the chain that is really slipping always is the "public servant" who can be persuaded to move everyone else's money to this or that company through contracts so, Why use people?
Public contract assingment and evaluation can be one of those few examples where smart contracts could really prove to be worth something. Formal rules to assign contracts and formal rules to evaluate their conditions are met. Everyone can see where the money is going and, since the contract itself can't be persuaded by fancy dinners or expensive cars, there is less room for corruption.
And it has the upside of removing a few more bureaucrats from the market as well.
This is a prime area where blockchain will come in and change government.
Down the road, these types of situations will not take place since all activity will be on the blockchain.
Right now, the money flows rules....the "public servant" you mentioned is basically bribed....we see that in the US with our Congress...their re-election wallets are filled by corporate entities (I know they arent allowed to do that) which effectively buys them influence.
This is not much different then the cash in an envelop put in a cake box like in Shawshank Redemption.
This company might not be as "private" as some may believe. It had mostly governments contracts, using borrowed money to finance the jobs the government wanted, and then dropping the ball back on government less all the borrowed cash which will be wiped out.
Its maybe conspiracy theory but this may have been a useful company that was used to fleece investors and get what the government and their cronies wanted at bargain prices. Unless the government falls that is
Despite watching the company gorge and fatten from the contract trough, and stumble into increasing debt, the government continued to award them contracts. Outsourcing became a mantra of government efficiency. Carillion embraced the need. It ate itself on increasingly less lucrative contracts and increasing debt.
Of course, you could blame the civil servants who approved the contracts. Civil servants on massive pension guarantees (paid by our taxes) were quite happy to do their job – which was awarding contracts to the cheapest bid and going out for regular and expensive dinners with the Carillion bid teams to “review contracts”. Due diligence means cheapest. But, they appear to have paid absolutely no attention to ability of the contractor to actually deliver or opine on its financial prospects.
Yes, the British group said in a statement it had no choice but to "liquidate it with immediate effect", leaving some 43,000 employees, including 19,500 in the UK.
She explained that the government is supposed to provide the necessary funds to maintain public services provided by "Carillion" and constitute an important part of its activity through services provided especially to schools and the British army.
Yes...it is the same here with the public employee unions....government employees agreed to deal with the unions which were not feasible. Long after the politicians left office, the bills come due. Of course, a number of cities like Detroit couldnt afford them so they had to declare bankruptcy.
Carillion executives were big donors to the Conservative party, and their ex-CEO (still drawing a huge salary despite being ousted months ago) sits on a government committee. Lots of backs being scratched there.
Having read the reports and articles surrounding the collapse I have to wonder just how much the government were really involved. Reports that RBS ( which is majority owned by the government since its own bail out ) wanted Carillion to pre-fund suppliers payments - another bank Santander wrote and emailed other suppliers to say that all payments with Carillion have been stopped.
The question I have is this - if the government knew Carillion was struggling ( and all evidence points to them knowing months if not years ago that they were not in a good financial situation ) then why did they keep awarding them billions of pounds in contracts ?
It's look like the problems that Petrobras had here in Brazil, the diference was that Petrobras had problems with corruption in all levels and the government draining their profits.
It has been passed more than 3 years and the problem wasn't solved completely solved but maybe in just more 2 years everything will be solved.
Thanks for sharing @zer0hedge
Corruption is the same no matter who the players are or the country it in.
In the end, the taxpayers are on the hook for it while it taking years to unwind. Of course, often new politicians come in and compound the problem by making deals which worsens the situation.
@taskmaster4450, Brazil is under a pool of corruption.
Just for you have a number of what I am saying, an investigation process here that we call "carwash" indicted more than two hundred people involved in politics.
One difference is I think that the UK government won't honour the contracts that Carillion has with its employees/subcontractors. I say this because Carillion was a private company that made agreements without guareetes from the state This should allow the state to be able to pick who to rescue and who to drop.
Am I right in thinking 100% Petrobras is State controlled?
You're right on about the asian markets... was honestly thinking of doing a post about this myself but am having a hard time coming up with content that I think people will WANT to hear... maybe I will take a fancy at yours and see if any additional ideas spark my interest. Nonetheless, brilliant stuff, per usual from @zer0hedge
fraud at its very best! that's why we need a trustless system.
I heard that Greene was very sad for Carillion, and for our colleagues, suppliers and customers, who we have been proud to serve for many years. "
Carillon's creditors include RBS, Santander UC, HSBC and others.
In addition to many debts
The company, which was founded two hundred years ago, operates public services, such as hospitals, train lines and sites belonging to the Ministry of Defense.
The company has implemented construction projects such as the Royal Opera House in London, the Suez Canal Tunnel and Union Station in Toronto.
Continuing services
"We can not expect taxpayers to bear the burden of rescuing a private sector," said Cabinet Secretary David Ledington.
"It is naturally disappointing that Carillion is stumbling, but our primary responsibility has always been to keep our core public services going smoothly."
He stressed that the government "will provide the necessary funding required by the custodian (to liquidate companies), to maintain the functioning of public services."
The opposition Labor Party has called for an inquiry into the government's actions ahead of the collapse of Carillion.
"We demand a full investigation into the government's action on this," said Rebecca Longley, a Labor Party spokeswoman for BBC television.
"We want to ensure that the British taxpayer will not lose because of the actions of the government and this company.
@zer0hedge
LONDON (Reuters) - Britain's Carillion Group said on Monday it was bankrupt at a time when thousands of employees feared losing jobs.
The British company began steps to enter the mandatory liquidation after the authorities refused to use budget funds to save them.
Most of the company's contracts in Britain are government contracts,
Ministers in the Teresa-Mai government, and possibly previous governments, have questions about giving them government contracts at a time when markets are aware of the company's deteriorating status and possible bankruptcy.
According to the newspaper "Sun" British, the company employs about 20 thousand employees at the headquarters in Britain only, and after the bankruptcy decision, these jobs are in the wind.
Some 43,000 jobs around the world were threatened by the collapse of the company, which is heavily involved in the HS2 project as part of a £ 6.6 billion contract.
The British company "Carillion" has previously contributed to the construction and maintenance of Heathrow Airport Hall, and contributed to the establishment of a number of hospitals.
The British company has many projects in various fields.
Carillion Construction and Services of Britain collapsed today as banks refused to lend them any additional funds, overshadowing hundreds of major projects.
This comes at a time when the British government confirmed that it will continue to provide all services of the public sector, which will be affected by the announcement of the collapse of "Carillion".
The giant was forced to undergo forced liquidation after costly contract delays and a decline in new activities, sparking a series of warnings about the results, resulting in a loss of more than one billion pounds ($ 1.4 billion) in the first half of the year.
"In recent days we have not been able to raise funds to support our plan of action, so we reached this decision, which we deeply regret," said Philip Green, chairman of the company.
Thank you for sharing this important news
@zer0hedge
@zer0hedge...nice inform about the carillion..actually they doing a all contracts of the local and he took all the sources in his hand it a very un comfort to the local small business mans ge is took all the contracts of the governments and doing a faurd of some and chets the reamaing peoples of who is in the same field of this business and others..actually he hand over the all contracts with a low cost by using his influences by the politics and after that he is gaining more and more profits...only government get less compred to what ge earned because of his local peoples of business mans get sufferd...thank you for sharing this information with us...
Upvoted and re-steemed yo!