Carillion Fallout Affects Major Hospital Project in Liverpool
Managers of a 90%-complete, 646-bed hospital in Liverpool will take charge of the project after unravelling a public-private partnership with the contractor Carillion Plc, which collapsed ignominiously in January (ENR 1/22 p. 12). Following cancellation of the contractor’s other large U.K. hospital P3, near Birmingham, project lenders face large losses.
With a global payroll of 43,000, Carillion, the U.K.’s second-largest contractor at the time, crashed, leaving a $3.4-billion hole in its employee pension fund and owing $2.6 billion to its supply chain and creditors. The financial collapse was “a story of recklessness, hubris and greed,” concluded a joint report from two parliamentary committees, Business, Energy and Industrial Strategy, and Work and Pensions.
Among Carillion’s numerous P3 deals was the Royal Liverpool University Hospital building, which was first due for completion in March 2017. The hospital’s trust was charged with appointing a new, publicly funded contractor following termination of the P3 in September.
Carillion’s financial failings have been compounded by construction faults at the Royal Liverpool, including the use of cladding that was found to not comply with fire regulations. As a result, it will now take another 18 months to get the job done, according to a Trust spokeswoman.
The ill-fated Liverpool project started in December 2013, when the Trust closed a 33-year design, build, finance and operate contract with the special purpose Hospital Co., Liverpool. A special-purpose company is a subsidiary whose financial risk is kept separate from its parent. With a $20-million equity stake, Carillion owned half that company. At the same time, Hospital Co. signed a $440-million design-build delivery contract with Carillion.
Among lenders to the special purpose company was the European Investment Bank, which provided a 31-year, $119-million loan. EIB faces “significant losses” on the deal, according to a spokesman.
The bank has already written off a large slice of the $141 million it committed to the Carillion Midland Metropolitan Hospital P3 in Smethwick. The venture was terminated in June. Originally scheduled to open this October, the 669-bed hospital is now due for completion by a new publicly funded contractor in 2022.
Now in the hands of the government’s Insolvency Service, the last of Carillion’s contracts was transferred to other firms in August, ending the U.K.’s largest-ever trading liquidation.
After the transfers, nearly a fifth of Carillion’s 19,000 pre-crash U.K. workers were left without jobs. The public cost of severance payments to these employees could reach $86 million, reports Unite the Union. The U.K.’s second-largest trade union cited freedom of information details from the Insolvency Service.