MercoPress. South Atlantic News Agency

UK government moves in to attempt avoid complete collapse of construction giant Carillion

Employers' groups are trying to assess the exposure of small firms, but said many faced financial hardship.

Thousands of small firms working for failed construction giant Carillion are waiting to learn if they will be paid, amid growing fears some could close. Carillion used an extensive network of sub-contractors and local suppliers, paying them almost £1bn a year, according to its latest annual report.

Employers' groups are trying to assess the exposure of small firms, but said many faced financial hardship. It comes as critics step up calls for a review into the Carillion crisis.

Carillion's work stretched from the HS2 rail project and military contracts to maintaining hospitals, schools, and prisons. Among which it maintains 50.000 homes for military personnel; meals service at 218 schools; maintains 50 prisons and provides 11.500 inpatient hospital beds.

Although Cabinet Office Minister David Lidington said on Monday there would be government support for public sector contracts, those firms working on purely private sector deals would get only two days' support.

Carillion spent £952m with local suppliers in 2016 and used an extensive network of small firms because, it said, “we remain wholly committed to generating regional economic growth and development”.

But the head of the Federation of Small Businesses said thousands of jobs and livelihoods were now at risk because those firms would be at the back of the queue for payment. Mike Cherry said it was a situation made worse because Carillion extended its payment schedule to suppliers last year.

“These unpaid bills may well go back several months,” he continued. “I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.”

A partner at one accountancy firm, who asked not to be named, said small firms were looking at total losses stretching into hundreds of millions of pounds.

“Asset sales won't even raise enough to cover the debts of senior bank creditors, so many small firms won't see a bean,” he said.

Rudi Klein, head of Specialist Engineering Contractor, an umbrella group representing suppliers to the construction industry, said Carillion outsourced virtually all its work.

He said the government knew of Carillion's reliance on sub-contractors, but continued to award the company lucrative work despite growing concerns about its finances.

“It's that supply chain who is going to bear the massive loss,” he said. “There could be a large number of firms that will experience substantial financial distress.”