Looking to challenge a procurement decision?

Suppliers wishing to challenge have only a short time frame in which to act. Click here for our useful guide.

Which Regulations do you need?

To get up to speed with the various new procurement law regulations, please click below;

> Concession Contracts Regulations 2016 

> Utilities Contracts Regulations 2016

> Public Contracts Regulations 2015 

If you're not sure which regulations apply, click here.

   
  
  
   
(Click to edit)

Carillion Collapse – implications for public procurement


Carillion Collapse – implications for public procurement

January 22, 2018 12:05 PM | Posted by Beresford-Jones, Jenny | Print this page

The collapse of Carillion brings uncertainty for its employees, suppliers, sub-contractors, creditors and customers. The company’s liquidation raises a wide ranging set of questions, many of which cannot yet be answered. Of particular interest to public sector customers of Carillion will be the procurement law implications, including those of novating/retendering contracts (discussed further below).

It remains to be seen how Carillion will be wound up but the liquidators state that all the options are being explored, including a potential sale of the businesses and assets in whole or part.

A look at the raw statistics shows the scale and potential complexity of the construction giant’s liquidation. Carillion employs around 20,000 people in the UK directly, while many more workers will be affected by virtue of their being employed by major suppliers to or sub-contractors of Carillion, particularly if they are small or medium-sized entities.

Carillion’s customers will also need to consider their position, with the company being party to around 450 contracts (around one-third of its business) with public bodies (e.g. central and local government, NHS Bodies, schools, prisons and transport).

The firm PWC has been appointed to assist in the liquidation by the Official Receiver and has set up a webpage here, with advice to the various different categories of person/organisation affected.

The official line, at least for the present, appears to be that Carillion is continuing to trade for now, that employees should continue to turn up for work, and suppliers to supply goods and services, as normal.

Customers under current contracts are told that for now Carillion will continue to perform those contracts. How long this will continue is not made clear. Customers will be contacted on a contract by contract basis to discuss ongoing arrangements.

Creditors are advised to register with the liquidator.

Implications from a procurement law perspective

The immediately obvious question will be around whether contracts will have to be retendered competitively or whether the provisions of the Public Contracts Regulations 2015 can be relied on to avoid the need to do this.

Joint venture arrangements may contain step-in rights for one of the other partners to take over Carillion’s role in the delivery of the project. Assuming that these step in rights were included in the original deal then it is reasonable to hope that the exercising of the step in right will qualify as a “clear, precise and unequivocal” review clause and, as such, that the change in supplier will be permitted under Regulation 72. Legal advice would obviously need to be sought to confirm this on a case by case basis.

If parts of the Carillion business are sold then it is possible that contracts within that business will “novate” to the new provider as part of an asset sale. Regulation 72(1)(d)(ii) is helpful here as it provides that no retendering is needed where a new contractor replaces the old upon its succession into the position of the initial contractor following insolvency. A key difficulty here, however, is that the successor contractor must meet the selection criteria used when the contract was originally let. This could be difficult to satisfy if the original competition “set the bar high” in terms of the financial and economic standing required of contractors in order for them to qualify.
Where Regulation 72 cannot confidently be relied on, then contracting authorities are likely to have to run a new procurement for the services/supplies/works concerned.

If a Carillion contract were to be terminated abruptly as part of the liquidation, it is potentially possible (but by no means certain) that this could be done without running a competition. This would be in reliance on Regulation 32 (negotiated procedure without notice) on the grounds that the “extreme urgency” test, due to the novel and unforeseen situation, was met. However this exemption is very narrowly construed by the Courts and should only be relied on after legal advice has been taken and the risks considered.

In the longer term there are also likely to be procurement policy implications of the fallout from the Carillion collapse. Noises are already being made in the press about the systemic failures of procurement processes to identify financially sound tenderers (including those who might previously have issued profit warnings), and about the over-reliance in the construction and other sectors on a few dominant PLCs, at the expense of smaller suppliers.

If you have queries around how to protect your position or manage stop-gap arrangements in the interim period, do contact our free to access to set up an initial chat.

By Jenny Beresford-Jones

Highlights

Contact Us

The Procurement Portal aims to provide a "one stop shop" for procurement law queries and advice.

Click here to email our team with your query.

Managing and mitigating procurement risk course

This updated course is great for anyone who wants to make informed judgments around procurement risk and be able to handle potentially contentious issues with confidence.

You can access our updated course here.

Subscribe by email

> Subscribe to our blog updates by email

The "FeedBurner" subscription service is provided by a third party and Mills & Reeve LLP therefore accepts no responsibility or liability for this service. Please also refer to our full terms and conditions.

Procurement FAQs

We have over 100 questions and answers on a host of topics, from advertisement to managing a procurement challenge.

> Click here to find out more