How will the liquidation of Carillion affect the HS2 scheme?

The early indications are that HS2 was perhaps better insulated than most against the collapse of Carillion, according to one law firm.

The board of Carillion announced earlier this month that it would be entering into compulsory liquidation following talks with key stakeholders.

Carillion was part of a number of construction contracts, including infrastructure projects such as HS2.

As a result of the collapse, it has been questioned what impact it could have on HS2 – as well as other infrastructure projects – and whether it would affect surrounding housing along the HS2 route.

What major infrastructure projects was Carillion involved in?

Carillion was part of a joint venture with fellow construction companies Eiffage and Kier for the HS2 rail scheme working on civil engineering packages lots C2 and C3.

This would have seen the trio of companies construct the north portal Chiltern tunnels to Brackley, and the Brackley to Long Itchington Wood Green tunnel south portal.

Kier and Carillion were also involved in the smart motorway schemes through a separate joint venture.

Carillion also worked on and supported Network Rail projects.

These included two contracts secured in November for Network Rail’s Midland Mainline improvement programme.  

Will these be impacted?

In terms of HS2, Kier – one of the partners in the joint venture – said that it and Eiffage were now 50/50 joint venture partners and all 51 Carillion employees, including apprentices, working on the CEK HS2 joint venture had been offered the opportunity to join Kier/Eiffage.

Mark Thurston, chief executive at HS2, welcomed the decision adding: “Through this difficult time, the team has continued to deliver and we’re grateful for their ongoing hard work and dedication.

“No time delays or costs implication have come about as a result of the events, underlining the strength of the joint venture approach taken by HS2 in procuring its partners.”

Kier also revealed that it had assumed full responsibility for the smart motorways project and all employees working on the schemes had been offered the chance to join Kier.

Kier will take on Carillion workers for the smart motorway projects

“The extent of any negative impact of Carillion’s collapse on the progress of HS2 is mitigated by the nature of the contracts,” said Alexander Moss, operations manager at Zorin.

“This triumvirate has allowed the other two contractors to undertake the work originally designated to Carillion and to also absorb its workforces.

“In theory, this should allow the work to continue with minimal delay.

“Luckily, the contracts are still in the design stage with final proposals yet to be submitted, which provides time for other companies to become part of the joint venture if needed.

“There’s never a good time for a major construction conglomerate to go into liquidation, but with regard to the impact on HS2, Carillion could have collapsed at a much worse time.”

However, Stuart Law, CEO and founder of Assetz Capital, said that it was likely to be more of a logistics issue than a resources issue.

“The workers and subcontractors who were working on HS2 have been taken on by [Kier/Eiffage] to continue with the project, so it seems to be a question of how to get them back on the job with a new master contractor. 

“It is doable, but given the scale of the shadow cast over the construction industry by Carillion’s collapse, it will take time.”

“Early indications are that HS2 was perhaps better insulated than most against the collapse of Carillion,” added David Savage, partner at law firm Charles Russell Speechlys.

“Carillion will naturally have had a significant contingent of sub-contractors and suppliers lined up to support HS2.

“It is inconceivable that the insolvency has not added pressure to the progression of the project, and the partners will need to move quickly to keep the supply chain intact to deliver – and be paid for – the work required.”

“But as a JV project, there is certainly greater incentive for the partners to step in and make a success of the scheme than other Carillion projects with no other partners in place to take control,” David claimed.

Network Rail and PwC are working closely on proposals for the future treatment of contracts

Could there be a wider impact on housing surrounding projects?

Richard Flenley, a senior associate at Charles Russell Speechlys, said: “HS2 will need to continue its detailed dialogue with those owning land and running businesses around the route.

“But it will now need to do so under [the] heightened political scrutiny of the project at the same time as it launches the petitioning window for Phase 2a of the scheme (Birmingham to the new transport hub at Crewe), and opens dialogue and impact mitigation agreements with those affected by the proposed northern-most spurs of the route.”

Sam Howard, COO at Regentsmead, explained that with Kier and Eiffage having stepped into Carillion’s shoes, it should mean “little impact” for the HS2 scheme and surrounding housing along the HS2 route.

“I think there is greater concern for UK infrastructure given the extent of Carillion’s public sector contracts and the effect on its suppliers and contractors.

“It also raises a broader question as to whether the wholesale transfer of major infrastructure to the private sector does come with major risks.”

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