{"id":472206,"date":"2023-01-18T06:50:26","date_gmt":"2023-01-18T06:50:26","guid":{"rendered":"https:\/\/www.constructionnews.co.uk\/?p=472206"},"modified":"2023-01-17T16:23:03","modified_gmt":"2023-01-17T16:23:03","slug":"carillion-collapse-catastrophe-echoes-five-years-on","status":"publish","type":"post","link":"https:\/\/www.constructionnews.co.uk\/contractors\/carillion\/carillion-collapse-catastrophe-echoes-five-years-on-18-01-2023\/","title":{"rendered":"Carillion collapse: catastrophe echoes five years on"},"content":{"rendered":"

Five years on from the collapse of Carillion, a \u00a31.3bn legal dispute continues to rage over the audit of major long-term construction projects held by the firm.<\/span><\/p>\n

At the time of its<\/span> compulsory liquidation<\/span><\/a> in 2018, with liabilities of \u00a37bn, the Birmingham-headquartered company was the second-largest contractor in the UK, employing 43,000 people globally, including 18,000 in the UK.<\/span><\/p>\n

Creditors and shareholders were left out of pocket by the failure of the firm, which held about 450 public sector contracts, forcing the government to step in to ensure the continuation of critical services.<\/span><\/p>\n

The Official Receiver, acting on behalf of Carillion\u2019s creditors, is still pursuing legal action against auditor KPMG, which it claims failed in its duty to spot misstatements in the group\u2019s accounts.<\/span><\/p>\n

First filed last February<\/span><\/a>, the claim focuses on the value of projects including the Royal Liverpool Hospital, the Southmead Hospital redevelopment in Bristol, the Aberdeen Western Peripheral Route, and significant works at Gatwick and Stansted airports, which the creditors allege were not properly accounted for in the company\u2019s audits.<\/span><\/p>\n

According to court papers setting out the creditors\u2019 claims, KPMG failed to respond to red flags that should have alerted it to \u201ca clear and obvious risk of misstatement\u201d, despite knowing that there were problems in relation to the projects and identifying the audit of construction contracts as a \u201csignificant risk\u201d.<\/span><\/p>\n

Instead, it accepted management explanations for inflated revenue and understated cost positions, it is alleged, resulting in audits that \u201cmust have been, and were, fundamentally deficient\u201d.<\/span><\/p>\n

In their most recent court filings, the creditors claimed KPMG had failed to respond to the detailed allegations relating to 20 major projects, the financial performance of which they said was misstated.<\/span><\/p>\n

A spokeswoman for KPMG said responsibility for the failure of Carillion lay solely with the company\u2019s board and management, who set the strategy and ran the business.<\/span><\/p>\n

\u201cWe believe this claim is without merit and we will robustly defend the case,\u201d she said.<\/span><\/p>\n

A full trial is expected to take place in 2024 or 2025, unless a settlement is reached.<\/span><\/p>\n

Last year, KPMG was<\/span> fined \u00a314.4m<\/span><\/a> by the Financial Reporting Council \u2013 the body that oversees accountancy firms \u2013 for forging documents and misleading regulators in the run-up to Carillion\u2019s collapse.<\/span><\/p>\n

KPMG’s UK chief executive had admitted that the auditor had<\/span> misled the watchdog<\/span><\/a> over the number of construction service contracts it had interrogated in its work with Carillion.<\/span><\/p>\n

A separate investigation into the audit work of KPMG at Carillion is still ongoing.<\/span><\/p>\n

Last year, a probe by the Financial Conduct Authority led to Carillion being censured and<\/span> three former directors handed provisional fines<\/span><\/a> of almost \u00a31m for their contribution to the misleading picture that had been painted of the company\u2019s finances.<\/span><\/p>\n

According to the watchdog, management put \u201csignificant pressure\u201d on staff within Carillion\u2019s UK construction arm to \u201capply increasingly aggressive contract accounting judgements\u201d to raise the financial performance of projects to meet what was seen as unrealistic financial targets.<\/span><\/p>\n

The contractor had begun to use negative accruals on a number of large projects, including the Royal Liverpool Hospital and Aberdeen bypass, in an attempt to \u201chold the position\u201d on its profit margin, the authority found.<\/span><\/p>\n

Earlier this month, more than 140 former Carillion employees who lost their jobs when the firm entered liquidation had an<\/span> appeal for compensation rejected<\/span><\/a> at an Employment Appeal Tribunal.<\/span><\/p>\n

\n

FROM THE ARCHIVE<\/strong><\/em><\/h3>\n

Watchdog report: how \u2018misleading\u2019 finances were produced<\/a><\/h2>\n

In four lengthy reports, stretching to nearly 300 pages in total, the Financial Conduct Authority set out what it believes happened inside the contractor, from 1 July 2016 to 10 July 2017. Construction News<\/em> has the details<\/a>.<\/p>\n

Five jobs that killed Carillion: the \u00a31.3bn lawsuit in detail<\/a><\/h2>\n

To support the Official Receiver’s (OR) case against KPMG, which alleges that the auditor did not sufficiently interrogate and challenge project information provided by Carillion’s management, the OR carried out a thorough analysis of 20 Carillion jobs. Here are the details of five of the projects analysed<\/a>.<\/p>\n

Carillion\u2019s silent victims: the dangers of speaking out<\/a><\/h2>\n

A year after Carillion\u2019s collapse, many subcontractors still felt unable to speak out, having lost large sums of money owed to them. Construction News<\/em> spoke with some of those affected to find out why. Click here to read the full feature.<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Five years on from the collapse of Carillion, a \u00a31.3bn legal dispute continues to rage over the audit of major long-term construction projects held by the firm. At the time of its compulsory liquidation in 2018, with liabilities of \u00a37bn, the Birmingham-headquartered company was the second-largest contractor in the UK, employing 43,000 people globally, including …<\/p>\n","protected":false},"author":130832,"featured_media":380531,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false},"categories":[531],"tags":[],"yoast_head":"\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n\n\n\n\n\t\n\t\n\t\n