Skip to navigation Skip to main content

Learning from Carillion: How to avoid being left without a chair if the music stops

Jason Walton

With the widespread media coverage of Carillion’s collapse and the impact on public sector organisations, local authorities across the country are no doubt double-checking their own resilience.

As Council Leaders, Chief Executives and NHS Trustees take stock of their exposure, here are five steps to take if you don’t want to be left standing:

  1. Identify your major and your important suppliers – they are not always the same. Small contractors, such as those for an autism day care centre, might have greater importance than its financial value suggests as the services that it provides are vital for its users.  Assessing and rating your full risk exposure from each and every supplier will reveal the points of stress.
  2. Locate lifeboats. When we help our clients put major contracts in place, we pay great attention to the contract’s financial distress provisions.  These legislate for what happens if the supplier gets into difficulties and sets out what protections you may have, such as bonds (so that staff can be paid), temporary powers to step-in and run the service (possibly using their staff), money in escrow, or a parent company guarantee.  You may already have these protections; dig out the contracts and find out if you do (and if they are up to the job), and what actions you may need to take to trigger them.
  3. Run checks. There are simple accounting checks and ratios that you should be able to run quite quickly that will give you an idea of your suppliers’ financial resilience.  As well as those that Finance Directors can do themselves, credit rating agencies can run online checks within minutes.  Don’t forget step two above – some contracts will specify financial distress trigger conditions, so check for these first.
  4. Consider contingencies. How would you respond if a supplier became insolvent? What if there was a major reputational problem? Running scenarios in a workshop will help to clarify issues you know about, and uncover issues you hadn’t thought of. Get these problems and solutions onto the corporate risk register.
  5. Still feel exposed?  Even when a contract is live, it is not too late to build in additional sensible protections, without gold-plating each contract.

If you have other steps to suggest, or would like to discuss this list, please do get in touch.

Written by

Jason Walton



Sign up for the latest thinking on delivering sustainable change and better public services

No spam; unsubscribe easily at any time. Learn more in our Privacy Policy.