Construction News Read UK Construction Industry News, Analysis, Opinion and data
Carillion never admitted what the problem projects were that led to its £845m writedown in July, which began the public chain of events the led to its collapse.
Among analysts, however, it has been an open secret.
At the time of last July’s profit warning, the firm said £375m of its £845m provision was related to the UK, with the majority of that being three PPP projects.
These are believed to the Aberdeen Western Peripheral Route, Midland Metropolitan hospital in Birmingham, and the Royal Liverpool Hospital.
The remaining £470m was attributed to the firm’s exit from markets in Canada and the Middle East, including an alleged £200m it is owed for a contract in Doha.
So what went wrong in Aberdeen?
AWPR problems from the off
The £550m scheme, one of Scotland’s largest infrastructure projects, was hit by problems even before construction began.
The 58 km dual carriageway, which will provide a bypass linking north and south Aberdeen, was given the government green light in 2009. But it would be another six years before a JV Balfour Beatty, Carillion and Galliford Try would get shovels in the ground.
A local campaigner launched a legal challenge in May 2010, with the case eventually going all the way to the Supreme Court. William Walton, from the protest group Road Sense, had argued the process of the route selection was “fundamentally flawed and unjust”.
“The management of the construction must be called into question”
Peter Chapman MSP
The scheme was further delayed by problems with compensation for farmers who suffered damage to their land, and pollution concerns over run-off into the River Dee.
The delays to work commencing on site meant that more of the project would be carried out in the winter than had originally been planned – not ideal when you are working on complicated construction work in north Scotland.
Scottish Government uproar
Work eventually began on the scheme in February 2015. But it faced further problems as severe weather caused delays and damage, it is understood.
In late 2016, the Scottish Government was forced to admit the dualling section between Balmedie and Tipperty was delayed because key earthworks had not been finished prior to the winter. This delay attracted the ire of Scottish politicians, with MSP Peter Chapman suggesting that “the management of the construction must be called into question”.
The project is now finally nearing completion, with sign-off expected this spring. Due to the various issues, Applied Value analyst Stephen Rawlinson estimates the final cost of the project could be as much as £950m. This would go some way to explaining the provisions Carillion and Galliford Try have taken for the project.
It emerged last week that Balfour and Galliford will face a combined additional cash hit of up to £80m on the project due to Carillion’s collapse.
Galliford said it expects an extra cash cost between £30m and £40m. Balfour, meanwhile, said it is likely to take an overall hit of £35m-£45m, but that figure includes two other road projects where it was a JV partner with Carillion.
Adding insult to injury was the fact the JV was fined £280,000 last month for polluting two of Scotland’s most important salmon rivers.
Mr Rawlinson argues that the AWPR project reflects “many of the issues with UK contracting and working for government”.
He adds: “A meaningful amount of cash is now provisioned by the tier one suppliers, which in effect act as both the constructor and bank to the project.”