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What can we learn from Carillion?

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The failure of Carillion last week week, has brought the potential perils of working for large contractors into sharper focus. Given the number of subcontractors working on Carillion jobs, there are likely to be thousands of businesses either directly or indirectly impacted, although as yet no one is quite sure to what extent.

Of course, it is not just larger contractors that can suffer failure and as a subcontractor business working in this sector, it is important to try and ensure there are ‘no surprises’ and protect yourself as much as possible against any adverse impact should your customer be unable or unwilling to pay you as and when due. After all the reason for doing the job is to get paid!

Areas that should be considered (and are worth getting advice about) include –

  • Ensure you know exactly which company you are contracted with – Is there a larger group structure or is this part of a Joint Venture? (not all Carillion companies are currently in liquidation and some of the responsibility for the Government contracts should pass automatically onto other parties)
  • Understand the terms of the contract you are entering (have these reviewed retrospectively) – Ensure you understand the responsibilities of all parties. What are the penalties for non-delivery? When do you need to raise invoices (or applications for payment)? What are the payment terms (unfortunately despite the Prompt Payment code, there are still long payment terms evident (e.g. 90 days)? This can be difficult to influence and often feel like the ‘tail wagging dog’? Consider pricing your work based on these payment terms if you can.
  • What is the Cashflow Impact on your business? – Do you have sufficient working capital to complete your responsibilities to the required standard and on time? There are specialist funders who can unlock funds against contracts on a staged basis to support cashflow and others who can provide short and longer-term support to secure the assets that you need to fulfil the work.
  • Debtor Insurance – As has been seen with the Carillion situation, even the biggest companies can fail. It is worth considering insuring against this eventuality. Many insurers will also protect against protracted default (‘late payment’) too, which could support cashflow. It is vital to ensure that the procedures required by the insurer are strictly followed so that any claim can be completed quickly.

If things don’t go to plan (as with Carillion) and you need to seek ways of securing the payments for the work you have completed, it is important to look at the following –

  • Settlement negotiation – Some cash is better than none and whilst it will be frustrating not to get the full value due, if you are able to negotiate a settlement this will bring cash back in to the business and may reduce the need for additional cost in trying to recover full payment.
  • Liquidation – If your customer fails and the responsibility is not automatically passing (together with your contract) to another main contractor you must ensure that you submit your claim together all relevant documentation supporting your claim to the Liquidator as soon as possible.
  • If you have Debtor insurance in place, again it is important to submit your claim together with all relevant supporting documentation as quickly as possible.
  • By not getting payment when you expect, this may have an adverse impact on your own cashflow. Be prepared to speak with your key suppliers. Keeping them advised is more likely to gain their support as you look to trade through any challenging time.

These are all areas that BHP Debt Advisory would be happy to help you (together with our professional partners). Please give contact Mark Storey on 07702 221583 or email