Carillion ‘was acting like a Ponzi scheme’
The collapsed construction and support services group Carillion was compared to operating “like a Ponzi scheme” in a new television investigation.
Channel Four's Dispatches tonight looks at what led up to the Wolverhampton-based business going into liquidation in January.
More than 2,700 have been made redundant since then.
The programme – How to Lose Seven Billion Pounds – sees the UK’s longest-ever serving auditor general Sir John Bourn say that Carillion had been subject to “inadequate” Government scrutiny.
He told Dispatches in an interview that he was “angry and disappointed” when the construction and outsourcing giant collapsed leaving nearly 500 public contracts in limbo and tens of thousands of suppliers and sub-contractors unpaid.
Sir John, who was auditor general from 1998 to 2008, said: “The Government should not in my view have given Carillion so much work.You could see that Carillion was in trouble – it was all rather like a Ponzi scheme because it was taking small contracts as a way of keeping the bigger contracts going."
He said he was surprised he Government went on giving public sector contracts, worth almost £2 billion, to Carillion after it issued an £845 million profits warning in July last year.
"You couldn't have had a better warning to be careful. It wasn't a good idea to give this work to a company in such a dicey position."
“I was surprised that the government had gone on giving it contracts. Here’s an enormous strategic supplier. We would’ve raised the question, are you sure this is what you want to do? How much do you actually know about Carillion? Have you looked at the newspapers? Aren’t you worried about what you read there? So many hedge funds were betting against its continuance, and that was open for everyone to see," he added.
WATCH: A preview of tonight's documentary
Carillion, which was one of the UK’s biggest construction and government outsourcing firms with annual revenue of more than £5bn pounds, collapsed with liabilities of up to £7bn according to the Official Receiver, including a record £800 million pension deficit and many unfinished projects such as the Midland Metropolitan Hospital in Smethwick.
Dispatches asked insiders from the City and Whitehall whey they thought regulators and auditors failed to spot the warning signals at Carillion which was delivering hundreds of contracts for the Government , from delivering school meals to maintaining houses for soldiers.
The Cabinet Office said it knew about the warnings about Carillion’s financial situation and discussed them with the company’s management, who reassured them the warnings were wrong.
Matthew Vincent, a columnist at the Financial Times, told Dispatches: “This was a legal form of Ponzi scheme. Ponzi schemes are scams whereby you get promised big investment returns but they’re not really returns at all, it’s just the people behind the scheme going out and getting new money in the door and paying it to you, pretending that it’s an investment return. Carillion was doing the same thing. And eventually both Ponzi schemes and Carillion cannot get enough new money through the door and they collapse.”
Sir John said ministers and civil servants did not pay attention to the range of Carillion's business and the weaknesses in its financial position.
"They should have abridged the programme of putting work there and looked to other competitors who could have contributed to public service," he added.
Robin Ellison, chairman of Carillion pension Trustees, told Dispatches that he tried to convince Carillion to tackle the pension schemes deficit.
"We thought they could pay more without affecting the value of the company and they weren't prepared to pay.
"Were we worried for members? Yes we were. Did we do our best to try and recover it? Yes we did. The difference in this case was that they were in a non-negotiating mode," he explained.
- Channel Four's Dispatches screens tonight from 10.30pm