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 procurement portal helpline to set up an initial chat.