It’s hard not to have heard of the Carillion group, particularly of late as the organisation went through a very public liquidation last month. For those who are not aware of the organisation, this news may not sound like a huge deal but the far-reaching consequences of this outcome of rescue talks will be felt amongst both the public and private sectors over some considerable time; experts suggest it could take at least two months for contracts to be retendered, leaving organisations without a contractor for the duration, particularly for public organisations due to the several stages of public procurement. This lengthy time-frame could be extended longer if the public body is not able to invoke urgency provisions to reduce their bidding time, if their tender documents are not prepared in advance or account for any backward or forward within negotiating contract terms.

This is concerning for many within the public sector as Carillion was one of the major construction contractors, supporting a number of PFI schemes, as well as offering services to schools, NHS bodies and the local government. The public sector is already looking toward alternatives for their contracts, however, this is difficult because the public sector contracts which Carillion service are multifaceted and changing them at short notice can be problematic, particularly as compliance with the Public Contracts Regulations 2015 is required for contracts.

Fortunately for those who have utilised the services of Carillion group, salvation comes in the form of Regulation clause 72 which states that a new contractor can replace a previous contractor if they essentially “step into their shoes”, in addition to satisfying the existing criteria applied within their procurement, as determined by an SQ/PQQ (i.e. standardised questionnaires). The regulation is also particularly strict in not allowing a new contract or alternative term to be implemented within the contract, essentially stating that no “substantial modifications” can be made. Although, regulation 32 does allow for a new contract to be awarded without an OJEU(Official Journal of the European Union) advertisement in urgent situations, however, the status is determined by the courts and will only be awarded for a duration that the courts feel is reasonably necessary. As previously noted, these processes take time, which in many cases, can seriously jeopardise any success in organisational operations.

Currently, a government-appointed official is working with the PwC to ensure all 450 of Carillion’s public sector contracts are completed whilst new contractors are sourced.

What Can We Learn From Procurement from Carillion?

Perhaps the most fundamental lesson organisations can take from this disaster is ensuring contingency plans are put in place in case this issue should arise for any of the suppliers they utilise. Having a procedure to follow will ensure your business operations are not adversely affected by problems faced by organisations you outsource work to.

Some organisations may feel that bringing the work in-house will resolve the issues, however, when services are already overly-stretched, internal resources can be limited and trying to manage complex contracts can be a strain on both employees and budgets.

For those who are facing issues where suppliers are facing liquidation issues, the subsequent steps should be followed:

  • Review your existing contracts- is there a chance that you can terminate immediately and is there a notice procedure in place? Contact specialists if you need their assistance reviewing the applicable contract clauses.
  • Invoke your rights to exit the contract where possible with the help of expert advice.
  • At the moment, it is not known what will happen for the existing contracts and assets owned by the Carillion group, however, in most cases it will be “business as usual”. Despite this, it is highly advisable for any organisation or public body to make plans to source replacements that will need be needed in the foreseeable future. Contact experts in procurement companies to review your contracts and find alternative and reputable contractors to replace your current suppliers.

Get in touch with our experts today to discuss any questions, queries or concerns you may have on this topic. We utilise our years of experience to provide you with the best strategic advice that advances your organisation and helps to alleviate any current issues you may have that is impacting your operations or efficiency.

Article by: David Rickard