Lessons we can learn from the collapse of Carillion

1) Margins matter

Carillion in the first six months of 2017 posted profits of £11 million on revenues of £627 million, a margin of just 1.6 per cent. After an £845-million write-down of contracts, these tiny operating profits became an unmanageable loss. Carillion’s slimline margins made it a hostage to fortune.

2) Underbidding is roulette

It used to be easy for contractors to fleece the government. A big reason was the cluelessness of some civil servants. They had no idea how to write contracts. The impact of the Crown Commercial Service from 2010 has been huge. Over-generous and poorly written contracts are now harder to come by for contractors.

3) “Events, dear boy, events”

Carillion was hammered by events. The Aberdeen bypass was budgeted at £550 million. The light went green in 2008, but it took six years to cut turf. A legal campaign went to the Supreme Court, arguing the route-selection process was “flawed and unjust”. Farmers complained of damage to their land. Earthworks took longer than scheduled. As a result more work took place in the freezing Scottish winter than planned

4) Size is no guarantee of stability

No one is too big to fail. The government acted a few years ago to move away from mega-bidders. The web portal Contracts Finder was launched in 2011 to help small and medium-sized enterprises (SMEs) win government deals. The portal is booming in popularity. The latest data shows more than 200 companies are signing up a week.

If you’d like to find out more about alternative business finance facilities, we’d love to be able to help. Why not give Regency a ring today on 0161 280 4010, drop us an email at lynnew@regencyfactors.com or browse our website for more details on how our facilities work.