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[Football] Carillion on the brink ?



kjgood

Well-known member
You obviously know more about this than most.

Do I take it the way PFI works is that the government say
" We want a hospital but we are not going to pay any money for it until it is built and signed off"
The contractor says " Ok then, we will build your hospital for £500 million , we will finance completely finance it and when it is built, we will send you a bill for £500 million and a add on for say £100 million to cover profit etc.."
" oh and we will maintain and run the infrastructure for a sum on £10 million a year for a thousand years or to the point where anyone will take the work on ( like Railtrack)"

Is that how PFI works?

Cant say for all PFI's but for the one I work on an SPV (Special Purpose Vehicle or a small holding company put together by a group of investors) financed the cost to design and build the facility with the promise of a long contract to operate the said facility. The SPV will normally have to undertake the operating maintenance of the facility along with any 'Lifecycle replacement costs', i.e. the boilers need replacing after 15 years or the carpets after 10 so that the facility is in good operating condition at the end of the operating contract. In return the Government pays the operating contract costs plus a levy on top for the original capital costs over the remainder of the operating contract, so at the end of the operating contract the facility belongs to the Government and the SPV can be moved on. So a sort of mortgage repayment over the term of the operating contract. Using this process the Government also has the opportunity to hide in some ways the cost of the build so it doesnt appear on the 'Balance books' for the term in office.

Hope that goes some way to explain.
 


Gritt23

New member
Jul 7, 2003
14,902
Meopham, Kent.
You obviously know more about this than most.

Do I take it the way PFI works is that the government say
" We want a hospital but we are not going to pay any money for it until it is built and signed off"
The contractor says " Ok then, we will build your hospital for £500 million , we will finance completely finance it and when it is built, we will send you a bill for £500 million and a add on for say £100 million to cover profit etc.."
" oh and we will maintain and run the infrastructure for a sum on £10 million a year for a thousand years or to the point where anyone will take the work on ( like Railtrack)"

Is that how PFI works?

No. Any public project are tenders for in the usual way. Carillion will price a job, say Liverpool Hospital for say £200m (I don't know how big that contract is). They're doing that at cost, profit will be factored in to that. A Main Contractor like Carillion then effectively manages the project, by sub-contracting the various trades out. They'll issue a groundwork package, enabling, frame etc to a variety of specialist sub-contractors, through to drylining, M&E and fit-out trades. Carillion have estimated what each sub-contracted package will cost them, plus their own pre-lim costs, and hopefully that comes to £190m, and they are making £10m. If they can't sub-contract at the prices they expect, it's their risk, as would be any penalty clauses for missing completion dates (and that has been hurting Carillion for a while now).

As for them getting paid along the way, as part of the contract you agree valuation dates, usually monthly. So, at the end of month 1, Carillion value the work that has been done on site up to that date, and issue an application for payment for say, £8m. The clients QS, then decides what he thinks the value of work to date is worth, issues a certificate for that value, and that is what they are paid. So, no, Carillion don't pay for it all along the way, and get paid in full at the end.

Likewise, that is the arrangement all of the sub-contractors below Carillion, have with Carillion.

The more contentious PFI stuff is when an outside company performs an on-going service for the Public Sector that you may otherwise think is being bone by Public Sector workers. Building maintenance - rather than employing a whole host of maintenance guys directly, the Public Sector will award Carillion a maintenance contract covering schools and prisons. That just comes down to money. If Carillion can demonstrate they can do it cheaper than the Public Sector employing guys on a permanent contract when they will be short of work sometimes, and too busy to cope at others, then Carillion win that maintenance deal. I don't get involved in much of that, it's the building projects that is my game.
 


TSB

Captain Hindsight
Jul 7, 2003
17,666
Lansdowne Place, Hove
Yep, just read up on that. Cheers.

You're quite welcome, Max.

That a FTSE250 company can announce a profit warning in July and be insolvent by January is a ludicrous situation and lessons must be learned to stop it happening again.
From just a cursory scan of the papers today, it seems there were some glaring liabilities in the business model and supply chain, which would be a good starting point.
 


Publius Ovidius

Well-known member
Jul 5, 2003
45,919
at home
No. Any public project are tenders for in the usual way. Carillion will price a job, say Liverpool Hospital for say £200m (I don't know how big that contract is). They're doing that at cost, profit will be factored in to that. A Main Contractor like Carillion then effectively manages the project, by sub-contracting the various trades out. They'll issue a groundwork package, enabling, frame etc to a variety of specialist sub-contractors, through to drylining, M&E and fit-out trades. Carillion have estimated what each sub-contracted package will cost them, plus their own pre-lim costs, and hopefully that comes to £190m, and they are making £10m. If they can't sub-contract at the prices they expect, it's their risk, as would be any penalty clauses for missing completion dates (and that has been hurting Carillion for a while now).

As for them getting paid along the way, as part of the contract you agree valuation dates, usually monthly. So, at the end of month 1, Carillion value the work that has been done on site up to that date, and issue an application for payment for say, £8m. The clients QS, then decides what he thinks the value of work to date is worth, issues a certificate for that value, and that is what they are paid. So, no, Carillion don't pay for it all along the way, and get paid in full at the end.

Likewise, that is the arrangement all of the sub-contractors below Carillion, have with Carillion.

The more contentious PFI stuff is when an outside company performs an on-going service for the Public Sector that you may otherwise think is being bone by Public Sector workers. Building maintenance - rather than employing a whole host of maintenance guys directly, the Public Sector will award Carillion a maintenance contract covering schools and prisons. That just comes down to money. If Carillion can demonstrate they can do it cheaper than the Public Sector employing guys on a permanent contract when they will be short of work sometimes, and too busy to cope at others, then Carillion win that maintenance deal. I don't get involved in much of that, it's the building projects that is my game.

Right...I remember when I worked in the building game how it was financed throughout the lifecycle with valuations and certificates ...and managed to find two companies who were double counting VAT on CERT had Valuation invoicing! Pointed it out to one company that they had double claimed and owed the HMMC & E over 2 million! I was told I was talking crap, sacked and called back in two weeks later, telling me I was right and how the hell were they going to put it right. The FD went instead.... C&E wouldn't negotiate on the VAT but we managed to keep the fines down.

I thought the pfi was done on final handover. Thanks.
 


Publius Ovidius

Well-known member
Jul 5, 2003
45,919
at home
Cant say for all PFI's but for the one I work on an SPV (Special Purpose Vehicle or a small holding company put together by a group of investors) financed the cost to design and build the facility with the promise of a long contract to operate the said facility. The SPV will normally have to undertake the operating maintenance of the facility along with any 'Lifecycle replacement costs', i.e. the boilers need replacing after 15 years or the carpets after 10 so that the facility is in good operating condition at the end of the operating contract. In return the Government pays the operating contract costs plus a levy on top for the original capital costs over the remainder of the operating contract, so at the end of the operating contract the facility belongs to the Government and the SPV can be moved on. So a sort of mortgage repayment over the term of the operating contract. Using this process the Government also has the opportunity to hide in some ways the cost of the build so it doesnt appear on the 'Balance books' for the term in office.



Hope that goes some way to explain.

It does. Thanks.
 




Tom Hark Preston Park

Will Post For Cash
Jul 6, 2003
69,880
What on earth was a construction firm doing getting involved with providing school dinners and running prisons? Snouts in too many public service troughs it would appear.
 




Gritt23

New member
Jul 7, 2003
14,902
Meopham, Kent.
I thought the pfi was done on final handover. Thanks.

At the end of a build, once it's reached practical completion, and been handed over, THEN there may well be a deal done for the on-going maintenance of the building going forward, but no automatic, and they may put the maintenance contract back out to tender at that stage anyway. It's hiring in a Private Company to do the jobs (such as maintenance) that otherwise would be a Public Sector employee is the PFI bit, really. The same procurement department probably deals with awarding all contracts, and that's how it all gets lumped together when being spoken about, but getting a Private Company in to build a hospital really isn't controversial at all, and not the change that Blair made when he switched to the PFI model. What was new at that time was the outsourcing of maintenance and service contracts.
 




Gritt23

New member
Jul 7, 2003
14,902
Meopham, Kent.
What on earth was a construction firm doing getting involved with providing school dinners and running prisons? Snouts in too many public service troughs it would appear.

I don't believe they "run prisons", I think the contract is to maintain the buildings. Providing school dinners? No idea. Again, I'd understand them having an on-going maintenance contract on the buildings, but dinners .... I'd never heard that before today.
 




kjgood

Well-known member
I don't believe they "run prisons", I think the contract is to maintain the buildings. Providing school dinners? No idea. Again, I'd understand them having an on-going maintenance contract on the buildings, but dinners .... I'd never heard that before today.

You are correct Carillion do not 'Run' prisons, however Carillion do act as maintenance contractors and take the the liability for lifecycle replacement.
 




beorhthelm

A. Virgo, Football Genius
Jul 21, 2003
35,264
What on earth was a construction firm doing getting involved with providing school dinners and running prisons? Snouts in too many public service troughs it would appear.

diversification. oh look, we have people in place and we can offer such a service, lets get into that additional market. on the contract side you can offer more, become a one stop shop. on the investor side it makes you look like you have broad range of income, in case something goes south. on paper both seem reasonable, and there is merit, until it goes pear shaped (or just out of fashion) and people say how terrible it was.

its a bit like the football utility player: seems like a good idea, would be great to have James Milner in your team, but when they aren't great in any position given, some say they are crap and wasting space.
 


Pavilionaire

Well-known member
Jul 7, 2003
30,521
As I have said, the government have their eye well off the ball with domestic issues

Indeed. Nobody in politics is making this point. You can't be in two places at once.

If a self-employed builder spent half the week making his own house into a palace then it would be no surprise if his business went tits up in the meantime.
 


Publius Ovidius

Well-known member
Jul 5, 2003
45,919
at home
At the end of a build, once it's reached practical completion, and been handed over, THEN there may well be a deal done for the on-going maintenance of the building going forward, but no automatic, and they may put the maintenance contract back out to tender at that stage anyway. It's hiring in a Private Company to do the jobs (such as maintenance) that otherwise would be a Public Sector employee is the PFI bit, really. The same procurement department probably deals with awarding all contracts, and that's how it all gets lumped together when being spoken about, but getting a Private Company in to build a hospital really isn't controversial at all, and not the change that Blair made when he switched to the PFI model. What was new at that time was the outsourcing of maintenance and service contracts.

Yep...I was the accountant for a company that provided the structural steel for Chelsea and Westminster Hospital and Woolwich Prison amongst others. They were huge contracts and we were subbed by I think it was McAlpines at the time. But we had many £10-50 million contracts with the big contractors at the time including Wimpey and Mowlem. I assume that Chelsea and westminster ultimate customer was the NHS who employed McAlpines...but this was long before the PFI
 




Gritt23

New member
Jul 7, 2003
14,902
Meopham, Kent.
Yep...I was the accountant for a company that provided the structural steel for Chelsea and Westminster Hospital and Woolwich Prison amongst others. They were huge contracts and we were subbed by I think it was McAlpines at the time. But we had many £10-50 million contracts with the big contractors at the time including Wimpey and Mowlem. I assume that Chelsea and westminster ultimate customer was the NHS who employed McAlpines...but this was long before the PFI

LOL, that's ironic. I was in a meeting only last week talking about a contract coming up at Chelsea and Westminster Hospital. Yep, NHS (or a similar Public body) is the ultimate client, but at my level we rarely deal beyond the Main Contractor. So that's Carillion, Wates, ISG, Willmott Dixon etc.
 


blockhseagull

Well-known member
Jan 30, 2006
7,349
Southampton
So is this. Wimpey, McAlpines, Molem?

Jeez. So the only big one left that is a British company is Balfour Beatty.?

Interesting that they were owned millions by the Qataris for the world cup stadiums ...those of us with experience with working in the Middle East know getting money out of them is hells only job!

No, Carillion was made up of the construction arms of several companies however Wimpey kept its housing arm and is still going as Taylor Wimpey after it bought Taylor Woodrow.
 


BigGully

Well-known member
Sep 8, 2006
7,139
Indeed. Nobody in politics is making this point. You can't be in two places at once.

If a self-employed builder spent half the week making his own house into a palace then it would be no surprise if his business went tits up in the meantime.

Do us all a favour, your like that drunk bloke that walks into the kebab shop at 2am wanting to start a fight.

If you bothered to look there seems some posters that have some real experience of many aspects of the financing and even specifically Carrilion itself, if you genuinely cared perhaps you would read and try to analyse what is being said before apportioning blame, today started with the usual sneer from [MENTION=409]Herr Tubthumper[/MENTION] and you could nearly sense his delight at this companies demise, then came the usual anti PFI and anti bankers and anti shareholders anti anything that they deem as capitalism, until much of that was quickly poo pooed

I am not saying it doesn't warrant investigation or that individuals should not be held to account politicians too, but give it a break on blaming absolutely everything on Brexit, apart from the successes of course you could always give that a go just for balance.
 


Herr Tubthumper

Well-known member
NSC Patreon
Jul 11, 2003
59,198
The Fatherland




Simster

"the man's an arse"
Jul 7, 2003
54,110
Surrey
Do us all a favour, your like that drunk bloke that walks into the kebab shop at 2am wanting to start a fight.

If you bothered to look there seems some posters that have some real experience of many aspects of the financing and even specifically Carrilion itself, if you genuinely cared perhaps you would read and try to analyse what is being said before apportioning blame, today started with the usual sneer from [MENTION=409]Herr Tubthumper[/MENTION] and you could nearly sense his delight at this companies demise, then came the usual anti PFI and anti bankers and anti shareholders anti anything that they deem as capitalism, until much of that was quickly poo pooed

I am not saying it doesn't warrant investigation or that individuals should not be held to account politicians too, but give it a break on blaming absolutely everything on Brexit, apart from the successes of course you could always give that a go just for balance.
So what are you saying then? I have to say, Pavilionaire's two lines made far more sense than your par-for-the-course pompous rant (with added comically crap grammar).

Personally, I'm getting quite tired at the way we have turned into a society where privatisation appears to be held up as a solution to public service inefficiency. It clearly isn't as we are seeing in yet another scenario here. It's high time we started paying out of the public purse for services that absolutely need to be in public hands. Whether it's trains, public buildings or a certain portion of our housing stock, we really do need to wake up and realise that the mantra of private firms is good / public ownership is bad really doesn't wash anymore, especially as the directors of these private firms running public services badly are NEVER held accountable.

I'm no socialist but am left genuinely wondering whether voting for Corbyn is the only way to change this sorry, unjust state of affairs. I don't want to pay absurd taxes but am wondering if it is a price worth paying in the short term.
 


BigGully

Well-known member
Sep 8, 2006
7,139
So what are you saying then? I have to say, Pavilionaire's two lines made far more sense than your par-for-the-course pompous rant (with added comically crap grammar).

Personally, I'm getting quite tired at the way we have turned into a society where privatisation appears to be held up as a solution to public service inefficiency. It clearly isn't as we are seeing in yet another scenario here. It's high time we started paying out of the public purse for services that absolutely need to be in public hands. Whether it's trains, public buildings or a certain portion of our housing stock, we really do need to wake up and realise that the mantra of private firms is good / public ownership is bad really doesn't wash anymore, especially as the directors of these private firms running public services badly are NEVER held accountable.

I'm no socialist but am left genuinely wondering whether voting for Corbyn is the only way to change this sorry, unjust state of affairs. I don't want to pay absurd taxes but am wondering if it is a price worth paying in the short term.

Thanks for your remarks about grammar, always a good start from you lot and then adds the jibe pompous towards me in the same sentence, righto.

The rest is renationalisation, not for me thank you.

Although you and me live in the same part of the world probably experience similar stuff, my feelings aren't that there is immediate failings in everything I see or use.

My family have been treated wonderfully by the NHS regularly throughout our lives, my children had good educations, I love the current bus service and the rare times I use the trains it is nearly luxury the stuff that the government are meant to deliver tend to do it quite well, whereas you seem to think it is not fit for purpose.
 



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