Carillion Liquidation

Nobody knows how many companies will be affected by the liquidation of Carillion, the true numbers will not become apparent for some time.

Most of my clients are small to medium sub contractors. Whilst they are unlikely to have contracted with Carillion directly many will have contracted with companies that look to Carillion for payment.

Most sub contract terms will include a clause that provides that should the Employer, or whoever is responsible for paying the Contractor become insolvent, the Contractor will only have to pay the sub Contractor if it receives payment for the Sub Contractors works from its Employer.

Many small Sub Contractors will never get paid for their works unless the responsibility for payment is taken up under a Collateral Warranty or the contact is novated.

Many people were surprised at the speed of Carillions collapse. Carillion went straight into liquidation and did not enter into Administration as many commentators had anticipated. It would have been difficult for any company trading with Carillion to protect itself once the wheels had started to come off.

If there is a lesson it must be that small Sub Contractors have to be careful not to take on too many contracts for any one Contractor. I have seen many Sub Contractors whose customer base consists of one dominant supplier.

If a Sub Contractor works for one dominant supplier it can find it difficult to take steps to obtain payment for fear of offending its paymaster and any disruption in the relationship can have far reaching effects often out of proportion to the issues in dispute.

If a large Contractor fails as happened to many in 2008 and as has happened to Carillion those Sub Contractors who have accepted too much work from the Contractor may well fail with them – through no fault of their own.