Should HM Gov' Bail Out Carillion?

rick_chasey

Frank the tank wrote:

Rick Chasey wrote:

PFI if done properly works for everyone.

It was just a badly run company.

Society.

Or is there no such thing?

Might have to fill in the blanks for me there frank. Not sure what you're on about.

bompington

Rick Chasey wrote:

Frank the tank wrote:

Rick Chasey wrote:

PFI if done properly works for everyone.

It was just a badly run company.

Society.

Or is there no such thing?

Might have to fill in the blanks for me there frank. Not sure what you're on about.

Still obsessed with Thatcher, of course.

rick_chasey

Ah ok.

Before I was born.

surrey_commuter

Slowmart wrote:

Surely the emphasis and weighting for balancing pension fund deficits should be over a shorter period?

It seems fundamentally wrong when shareholders take a dividend when the pension fund is in deficit. As Stevo says as long as there’s a plan to remedy the deficit over a number of years the regulator is content not to disturb the arrangement.

This is compounded when shareholders know that HMG will backstop any shortfall if the worst happens.

Where’s the incentive on shareholders and execs to do the right thing in terms of securing the livelihoods of their ex colleagues?

I know a bit about this stuff and it is far from simple.

Above Steveo says that the deficit ballooned in 2016 - this would have been down to gilt rates falling. As this was Brexit related there would have been an expectation that this was a short-term "technical" deficit.

Counter intuitively if a company is strong then the pension regulator is content with a longer deficit reduction term. Conversely if a company is in trouble then you should push for a quicker solution.

We do not know the details but looking at BHS you do question the strength of the Trustees. It is a voluntary role with a lot of responsibility and liability yet you need people bright enough and strong enough to negotiate with the CFO/CEO and possibly the Board.

btw - the Pension Lifeboat is self-funded by contributions from every DB scheme so will only cost the taxpayer if the Govt goes above and beyond.

lostboysaint

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Letap73 has answered the financial bit - which was amply illustrated by a few hedge funds betting against Carillion since 2013. You might want to check who else in the sector currently has exposure!

As for the rest, you sound like a spokesman for the Conservative party. Of course a deal isn't done in 24 hours - but just because it's taken months doesn't mean you commit to it if it's wrong. The same is true of "propping a business up". Why on earth would you place a contract with a failing business on the basis that it "might survive" with your help? You'd run a mile and place the contract with someone you knew would be capable of delivering it with the minimum of risk. Please don't stretch credibility by suggesting that the government was "protecting jobs". It wasn't. It was taking the cheapest option. The problem for them was that it came with the biggest risk.

I'm amused by the thought that you'd have ordered a bike from a manufacturer that was in financial trouble but knowing that your order "might" keep them going, knowing that any work that they do on it will be over-valued for your first payment and that when they go bust, although you may have a contingency (going to your second choice), you're now going to be short of money as well as having to absorb the cost for your time to sort it all out.

bompington

Strange, I haven't heard quite so much just recently about how PFI is a licence to extort unimaginable wealth from the taxpayer :?

lostboysaint

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

surrey_commuter

bompington wrote:

Strange, I haven't heard quite so much just recently about how PFI is a licence to extort unimaginable wealth from the taxpayer :?

exactly - where are the stories about it costing £200 to change a lightbulb? surely this means that we walk away from the contracts and drink a small dry sherry to celebrate

Stevo_666

lostboysaint wrote:

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Letap73 has answered the financial bit - which was amply illustrated by a few hedge funds betting against Carillion since 2013. You might want to check who else in the sector currently has exposure!

As for the rest, you sound like a spokesman for the Conservative party. Of course a deal isn't done in 24 hours - but just because it's taken months doesn't mean you commit to it if it's wrong. The same is true of "propping a business up". Why on earth would you place a contract with a failing business on the basis that it "might survive" with your help? You'd run a mile and place the contract with someone you knew would be capable of delivering it with the minimum of risk. Please don't stretch credibility by suggesting that the government was "protecting jobs". It wasn't. It was taking the cheapest option. The problem for them was that it came with the biggest risk.

I'm amused by the thought that you'd have ordered a bike from a manufacturer that was in financial trouble but knowing that your order "might" keep them going, knowing that any work that they do on it will be over-valued for your first payment and that when they go bust, although you may have a contingency (going to your second choice), you're now going to be short of money as well as having to absorb the cost for your time to sort it all out.

I don't know where you got most of your points above from, you seem to be either assuming too much or just imagining I said something that I didn't. Sounds in any event like your understanding of these things is a limited and your view maybe a bit biased.

I was just taking an objective look - see my later post on what I saw in the financial statements. Also not sure what Goo was trying to say, hence the question.

Just IMO, the reason for the demise of the company is likely to be down mainly to management - we may find out more in the near future.

Stevo_666

Rick Chasey wrote:

Frank the tank wrote:

Rick Chasey wrote:

PFI if done properly works for everyone.

It was just a badly run company.

Society.

Or is there no such thing?

Might have to fill in the blanks for me there frank. Not sure what you're on about.

I think Frank was replying to my question on 'who is it lucky for? but quoted the wrong person'. Frank seems to think that having some private sector employees moving over into state employment and doing the same job is somehow 'lucky' for society :? At the risk of re-igniting a few old debates...

lostboysaint

Stevo 666 wrote:

lostboysaint wrote:

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Letap73 has answered the financial bit - which was amply illustrated by a few hedge funds betting against Carillion since 2013. You might want to check who else in the sector currently has exposure!

As for the rest, you sound like a spokesman for the Conservative party. Of course a deal isn't done in 24 hours - but just because it's taken months doesn't mean you commit to it if it's wrong. The same is true of "propping a business up". Why on earth would you place a contract with a failing business on the basis that it "might survive" with your help? You'd run a mile and place the contract with someone you knew would be capable of delivering it with the minimum of risk. Please don't stretch credibility by suggesting that the government was "protecting jobs". It wasn't. It was taking the cheapest option. The problem for them was that it came with the biggest risk.

I'm amused by the thought that you'd have ordered a bike from a manufacturer that was in financial trouble but knowing that your order "might" keep them going, knowing that any work that they do on it will be over-valued for your first payment and that when they go bust, although you may have a contingency (going to your second choice), you're now going to be short of money as well as having to absorb the cost for your time to sort it all out.

I don't know where you got most of your points above from, you seem to be either assuming too much or just imagining I said something that I didn't. Sounds in any event like your understanding of these things is a limited and your view maybe a bit biased.

I was just taking an objective look - see my later post on what I saw in the financial statements. Also not sure what Goo was trying to say, hence the question.

Just IMO, the reason for the demise of the company is likely to be down mainly to management - we may find out more in the near future.

My understanding of this is a bit limited? Always good to come out with that sort of nonsense when you haven't got a clue what you're writing or who you're talking to and what they do.

Your post was clear - I dealt with the points in it. As you clearly struggled with the concept of why governments shouldn't be propping up failing businesses I gave you an example of what you wouldn't do in your own life to make it simple for you.

Your original post remains a load of rubbish. Perhaps you'd like to deal with why the government couldn't see what the rest of the country knew (Carillion was failing), that they were time pressured to place a deal or that you place the order to "help them out" whilst buying cheap.

And lastly, of course it's down to poor management. Brilliant observation. They went chasing a better share price by operating in markets they didn't understand with management teams in subsidiary divisions that clearly weren't good enough. They competitively tendered low margin, long term, high risk projects to satisfy a City that just wants to see growth and a solid order book without seeing the sustainability behind it. It's not a new story. It's what happened to Rok, Jarvis, Connaught and others. And yet the public sector, particularly central government (of both colours) are blinded by bullsh1t words and a few old school tie on the board and continue to place contracts with them.......

mr_goo

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Not suggesting anything untoward with the timing. Must have been purely coincidental. However if one was awarding a major contract. Would you award it to a company that had 24hours earlier issued a profits warning and also issued two previous to that within the last year? Surely it doesn't take a genius to figure that they were in trouble and unlikely to be able to deliver the scheme.

surrey_commuter

Mr Goo wrote:

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Not suggesting anything untoward with the timing. Must have been purely coincidental. However if one was awarding a major contract. Would you award it to a company that had 24hours earlier issued a profits warning and also issued two previous to that within the last year? Surely it doesn't take a genius to figure that they were in trouble and unlikely to be able to deliver the scheme.

Didn't they get guarantees from the other consortium members?

letap73

I'm no expert - however, if I was looking to invest then there are number of issues which would have told me to stay clear even before the profit warning:
1. The Altman Z score as I have mentioned previously suggests that Carillion was a strong bankruptcy risk.
2. The continually falling share price in favourable conditions.
3. The growing debt.
4. The large pension deficit.
5. The support services/construction sector in general appeared to be struggling.

Interserve is another company having problems - although Carillion collapsing may actually prove to a boon for them. Although, investing in Interserve would not be one for the faint hearted.

lostboysaint

letap73 wrote:

I'm no expert - however, if I was looking to invest then there are number of issues which would have told me to stay clear even before the profit warning:
1. The Altman Z score as I have mentioned previously suggests that Carillion was a strong bankruptcy risk.
2. The continually falling share price in favourable conditions.
3. The growing debt.
4. The large pension deficit.
5. The support services/construction sector in general appeared to be struggling.

Interserve is another company having problems - although Carillion collapsing may actually prove to a boon for them. Although, investing in Interserve would not be one for the faint hearted.

That's one of them. Full house if you can get the third.

letap73

Serco and Mitie both don't look too clever either.

TheBigBean

bompington wrote:

Strange, I haven't heard quite so much just recently about how PFI is a licence to extort unimaginable wealth from the taxpayer :?

There was a comment upthread along these lines.

TheBigBean

lostboysaint wrote:

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

I've never heard of anyone trying to win a PFI contract for an FM contract. There are long term investors whose objectives would be to minimise the future costs, but nearly all bids are won and lost on the construction contract. Everything else is decoration.

TheBigBean

It is also not hard to understand why contractors involved in any lengthy construction contracts are struggling - construction prices have rocketed in recent years. Everyone involved knew this would happen at some point.

lostboysaint

TheBigBean wrote:

lostboysaint wrote:

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

I've never heard of anyone trying to win a PFI contract for an FM contract. There are long term investors whose objectives would be to minimise the future costs, but nearly all bids are won and lost on the construction contract. Everything else is decoration.

They're a whole life cycle package tender. Whilst the headline figure may be the construction cost the total of the bid includes funding, FM and plenty more (the finance, legals and admin amount to around 30% of the cost in the whole life cycle of the PFI period!). All of which are generally substantially more than the construction cost. This is one of the reasons why PFI was ridiculed, because anyone who thought they knew construction would immediately say "how much?" and look incredulous when the figure was trotted out, especially if they broke it down to £/sqm. But they weren't allowing for the other costs.

I spent long enough at major contractors putting them together

lostboysaint

TheBigBean wrote:

It is also not hard to understand why contractors involved in any lengthy construction contracts are struggling - construction prices have rocketed in recent years. Everyone involved knew this would happen at some point.

Bang on. Long term, very (ultra) low margin, fixed price, won in competition. What a recipe that is.

TheBigBean

Mr Goo wrote:

Not suggesting anything untoward with the timing. Must have been purely coincidental. However if one was awarding a major contract. Would you award it to a company that had 24hours earlier issued a profits warning and also issued two previous to that within the last year? Surely it doesn't take a genius to figure that they were in trouble and unlikely to be able to deliver the scheme.

There's quite a difference between a profits warning and liquidation though. As I said above, if the counter-party had insisted on adequate security enhancement from Carillion then this would be less of a problem for them. Contractors regularly go bust, so at the outset, it is necessary to consider what would happen if the contractor does go bust, and mitigate the impact of this.

TheBigBean

lostboysaint wrote:

TheBigBean wrote:

lostboysaint wrote:

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

I've never heard of anyone trying to win a PFI contract for an FM contract. There are long term investors whose objectives would be to minimise the future costs, but nearly all bids are won and lost on the construction contract. Everything else is decoration.

They're a whole life cycle package tender. Whilst the headline figure may be the construction cost the total of the bid includes funding, FM and plenty more (the finance, legals and admin amount to around 30% of the cost in the whole life cycle of the PFI period!). All of which are generally substantially more than the construction cost. This is one of the reasons why PFI was ridiculed, because anyone who thought they knew construction would immediately say "how much?" and look incredulous when the figure was trotted out, especially if they broke it down to £/sqm. But they weren't allowing for the other costs.

I spent long enough at major contractors putting them together

No one has a material competitive advantage in debt finance, legals or admin. They can have some advantage on how much of a punt they are willing to take on FM and lifecycle, and a small advantage on investor returns, but none of this usually outweighs the variance in construction costs.

lostboysaint

TheBigBean wrote:

Mr Goo wrote:

Not suggesting anything untoward with the timing. Must have been purely coincidental. However if one was awarding a major contract. Would you award it to a company that had 24hours earlier issued a profits warning and also issued two previous to that within the last year? Surely it doesn't take a genius to figure that they were in trouble and unlikely to be able to deliver the scheme.

There's quite a difference between a profits warning and liquidation though. As I said above, if the counter-party had insisted on adequate security enhancement from Carillion then this would be less of a problem for them. Contractors regularly go bust, so at the outset, it is necessary to consider what would happen if the contractor does go bust, and mitigate the impact of this.

I'm sorry but Carillion had been an open secret for a long time. Putting warranties, performance bonds, parent group guarantees (because the contracting party would have been a subsidiary) is a waste of time and no substitute - despite having become exactly that - for doing proper due diligence. All you are doing is committing to the cheapest price in the tender and hoping that you then don't spend any of the difference between that and the second lowest on having to engage the second placed contractor when the inevitable happens. There are plenty of clients, particularly in the public sector, who are happy to do it though.

lostboysaint

TheBigBean wrote:

lostboysaint wrote:

TheBigBean wrote:

lostboysaint wrote:

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

I've never heard of anyone trying to win a PFI contract for an FM contract. There are long term investors whose objectives would be to minimise the future costs, but nearly all bids are won and lost on the construction contract. Everything else is decoration.

They're a whole life cycle package tender. Whilst the headline figure may be the construction cost the total of the bid includes funding, FM and plenty more (the finance, legals and admin amount to around 30% of the cost in the whole life cycle of the PFI period!). All of which are generally substantially more than the construction cost. This is one of the reasons why PFI was ridiculed, because anyone who thought they knew construction would immediately say "how much?" and look incredulous when the figure was trotted out, especially if they broke it down to £/sqm. But they weren't allowing for the other costs.

I spent long enough at major contractors putting them together

No one has a material competitive advantage in debt finance, legals or admin. They can have some advantage on how much of a punt they are willing to take on FM and lifecycle, and a small advantage on investor returns, but none of this usually outweighs the variance in construction costs.

What? Fees don't differ? Partners don't change rates to win work? Banks don't offer different rates? What a load of nonsense. They "tender" for work in exactly the same way as the contractor. In fact their costs are infinitely more variable than a construction project where there is a very, very clearly defined net cost for the materials and only labour, overhead, preliminary (management) and profit is variable. As I said, I spent plenty of time putting them together. Ever seen a row of banks studying a visitors book to see who's been in and out of the interview room to provide finance on a hospital project? You reckon they all offered the same? And that the cost would have been remotely similar over 25 years? I take it you don't shop around for a mortgage on the basis that "there is no material competitive advantage" offered by any of them to you?

TheBigBean

lostboysaint wrote:

TheBigBean wrote:

Mr Goo wrote:

Not suggesting anything untoward with the timing. Must have been purely coincidental. However if one was awarding a major contract. Would you award it to a company that had 24hours earlier issued a profits warning and also issued two previous to that within the last year? Surely it doesn't take a genius to figure that they were in trouble and unlikely to be able to deliver the scheme.

There's quite a difference between a profits warning and liquidation though. As I said above, if the counter-party had insisted on adequate security enhancement from Carillion then this would be less of a problem for them. Contractors regularly go bust, so at the outset, it is necessary to consider what would happen if the contractor does go bust, and mitigate the impact of this.

I'm sorry but Carillion had been an open secret for a long time. Putting warranties, performance bonds, parent group guarantees (because the contracting party would have been a subsidiary) is a waste of time and no substitute - despite having become exactly that - for doing proper due diligence. All you are doing is committing to the cheapest price in the tender and hoping that you then don't spend any of the difference between that and the second lowest on having to engage the second placed contractor when the inevitable happens. There are plenty of clients, particularly in the public sector, who are happy to do it though.

If you have a 10% performance bond, then you have 10% to waste on putting in place the 2nd cheapest. That's quite a lot. If Carillion was in such a mess then they wouldn't have been able to obtain a performance bond. It clearly causes delays and is not a great thing to happen, but mitigates a lot of the problems.

lostboysaint

That's great. I'm sure you've got staff just sitting around waiting to manage that process so that the 10% isn't totally lost

Of course they could get a bond - it's an insurance policy (as you well know) so they'd have just paid a higher premium. Whether they'd have been honest about that in their negotiations............

TheBigBean

lostboysaint wrote:

TheBigBean wrote:

lostboysaint wrote:

TheBigBean wrote:

lostboysaint wrote:

It is, but the amusing thing is that everyone assumes that the "contractor" ie. Carillion makes that but they don't. They're in the PFI agreement to secure a building contract (which is the least valuable element of it) but most importantly the long term operating FM contracts - that's what the city likes - however, it's still relatively low margin/long term. The real money earned from PFI is by the financiers, lawyers and the other "consultants". (It's readily available information if you want to look it up)

I've never heard of anyone trying to win a PFI contract for an FM contract. There are long term investors whose objectives would be to minimise the future costs, but nearly all bids are won and lost on the construction contract. Everything else is decoration.

They're a whole life cycle package tender. Whilst the headline figure may be the construction cost the total of the bid includes funding, FM and plenty more (the finance, legals and admin amount to around 30% of the cost in the whole life cycle of the PFI period!). All of which are generally substantially more than the construction cost. This is one of the reasons why PFI was ridiculed, because anyone who thought they knew construction would immediately say "how much?" and look incredulous when the figure was trotted out, especially if they broke it down to £/sqm. But they weren't allowing for the other costs.

I spent long enough at major contractors putting them together

No one has a material competitive advantage in debt finance, legals or admin. They can have some advantage on how much of a punt they are willing to take on FM and lifecycle, and a small advantage on investor returns, but none of this usually outweighs the variance in construction costs.

What? Fees don't differ? Partners don't change rates to win work? Banks don't offer different rates? What a load of nonsense. They "tender" for work in exactly the same way as the contractor. In fact their costs are infinitely more variable than a construction project where there is a very, very clearly defined net cost for the materials and only labour, overhead, preliminary (management) and profit is variable. As I said, I spent plenty of time putting them together. Ever seen a row of banks studying a visitors book to see who's been in and out of the interview room to provide finance on a hospital project? You reckon they all offered the same? And that the cost would have been remotely similar over 25 years? I take it you don't shop around for a mortgage on the basis that "there is no material competitive advantage" offered by any of them to you?

If you have a £100m construction contract, the legals will be less than 1% of the cost. The difference in construction prices is always far more than that.

Once upon a time (before 2008), financing PFIs was a competitive market and bidders selected their preferred lender before the bid. A competitive advantage could be managed by using the latest fancy financial product that didn't quite make sense - debt wrapped by monolines being the pinnacle of this era. Even then, bank finance was still less influential than the construction price.

After 2008, the market became a bit thin, so most bids were assessed on identical lending term sheets hence my statement above that there is no competitive advantage from bank debt in a bid.

lostboysaint

Once again you've completely missed the point and are confusing the construction contract with what most PFI contacts offered - which was a 25 year turnkey package, full FF&E (not included in almost all construction contracts), funded, maintained. And I'm afraid you are, as a result, miles out with your opinion of what the breakdown of costs is/was.

More than happy to discuss via PM rather than bore the others into submission.

Stevo_666

lostboysaint wrote:

Stevo 666 wrote:

lostboysaint wrote:

Stevo 666 wrote:

Mr Goo wrote:

lostboysaint wrote:

Rick Chasey wrote:

Tangled Metal wrote:

Three profit warnings in 6 months wasn't it? I'm sure HMG should have known about problems earlier than 6 months too. Or at least hope they would.

Every analyst covering it has been saying more or less that it was a mess.

Bit of a shame that the same analysts weren't asking the questions when the latest round of defence prime contracts and HS2 were awarded and when half the hedge funds in the city were betting against them (and have been since 2013). Might have opened the eyes of a few people who were downright lazy in their due diligence and made the process a bit more expedient and with less damage.

According to a risk analyst on the radio this morning, last year Carillion issued a profits warning. This sent the shares tumbling, as one would expect. The very next day Chris Grayling's Dept of Transport award them a multi million pound contract......And the shares go up.

I think the financial regulators need to investigate.

There would have been a fair lead time negotiating such a deal. Are you suggesting that a major contract was negotiated and awarded within 24 hours to help the company?

Also the government is in a bit of a catch 22 as if you pull all your future business from a company issuing a profit warning, you are hastening its demise - or maybe even causing the demise of a company that might have survived otherwise. Profit warnings are not necessarily 'fatal'. Although out of interest I may put my accountants hat on and look at their last set of published financials just to see what they looked like and what warning signs were there.

Letap73 has answered the financial bit - which was amply illustrated by a few hedge funds betting against Carillion since 2013. You might want to check who else in the sector currently has exposure!

As for the rest, you sound like a spokesman for the Conservative party. Of course a deal isn't done in 24 hours - but just because it's taken months doesn't mean you commit to it if it's wrong. The same is true of "propping a business up". Why on earth would you place a contract with a failing business on the basis that it "might survive" with your help? You'd run a mile and place the contract with someone you knew would be capable of delivering it with the minimum of risk. Please don't stretch credibility by suggesting that the government was "protecting jobs". It wasn't. It was taking the cheapest option. The problem for them was that it came with the biggest risk.

I'm amused by the thought that you'd have ordered a bike from a manufacturer that was in financial trouble but knowing that your order "might" keep them going, knowing that any work that they do on it will be over-valued for your first payment and that when they go bust, although you may have a contingency (going to your second choice), you're now going to be short of money as well as having to absorb the cost for your time to sort it all out.

I don't know where you got most of your points above from, you seem to be either assuming too much or just imagining I said something that I didn't. Sounds in any event like your understanding of these things is a limited and your view maybe a bit biased.

I was just taking an objective look - see my later post on what I saw in the financial statements. Also not sure what Goo was trying to say, hence the question.

Just IMO, the reason for the demise of the company is likely to be down mainly to management - we may find out more in the near future.

My understanding of this is a bit limited? Always good to come out with that sort of nonsense when you haven't got a clue what you're writing or who you're talking to and what they do.

Your post was clear - I dealt with the points in it. As you clearly struggled with the concept of why governments shouldn't be propping up failing businesses I gave you an example of what you wouldn't do in your own life to make it simple for you.

Your original post remains a load of rubbish. Perhaps you'd like to deal with why the government couldn't see what the rest of the country knew (Carillion was failing), that they were time pressured to place a deal or that you place the order to "help them out" whilst buying cheap.

And lastly, of course it's down to poor management. Brilliant observation. They went chasing a better share price by operating in markets they didn't understand with management teams in subsidiary divisions that clearly weren't good enough. They competitively tendered low margin, long term, high risk projects to satisfy a City that just wants to see growth and a solid order book without seeing the sustainability behind it. It's not a new story. It's what happened to Rok, Jarvis, Connaught and others. And yet the public sector, particularly central government (of both colours) are blinded by bullsh1t words and a few old school tie on the board and continue to place contracts with them.......

I never said anything about propping up failing businesses. So your second paragraph in your original reply to me is completely irrelevant. Try reading my posts properly before replying?

As for your 'ordering a bike thinking you might keep them going' point. Rubbish. The govt is is in a number of large contracts with contractors like Carillion and it is not easy to exit from signed up deals that are on-going. It is also in a position where the volume of business that it does with contractors like Carillion can significantly influence such companies prospects. Completely different from a small one-off purchase of a bike :roll:

As for poor management - it is stating the obvious but it is likely correct. So your point is what? May if you have some great insights about the company you can share them with us?