A new report published today (7 June) by the watchdog warned that the Government will lose around £148 million, which will be covered by money already allocated by the Cabinet Office to finance the costs of the liquidation.
The report adds that the true cost of Carillion’s demise is also “subject to a range of uncertainties” and it could take years to establish the final cost.
Carillion collapsed in January with debts of more than £1.5 billion. It was involved with construction and engineering projects around the country, including two PFI hospitals.
The report notes that around two thirds (11,638) of Carillion’s workforce have so far found new work, while 13% (2,332) were made redundant.
According to the NAO, the remaining 3,000 workers are still employed by Carillion.
The report also notes that the Cabinet Office began planning for the possible failure of Carillion shortly after the contractor posted its first profit warning in July 2017.
It adds the scale of the profit warning “came as a surprise” to the Government, as it contradicted previous information provided by Carillion.
In the months following the profit warning in July, Carillion announced £1.9 billion of new government work, including £1.3 billion of HS2 contracts.
The report states that none of the contracting authorities believes they had grounds for disqualifying the contracts under procurement rules.
In the case of Network Rail, the report says not awarding the contracts would have meant re-procuring and re-designing the contracts, which would have increased the total cost of the project.
Last month, a joint report by the Work and Pensions and BEIS Parliamentary select committees accused Carillion’s board of presiding over a “rotten corporate culture”, which led to the firm’s demise.
“When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts,” said the Head of the NAO, Amyas Morse.
“Doing a thorough job of protecting the public interest means the Government needs to understand the financial health and sustainability of its major suppliers and avoid creating relationships with those which are already weakened. Government has further to go in developing in this direction.”
The full NAO report can be read on the agency’s website.
