How to Lose Seven Billion Pounds (2018) Movie Script
1
Together fell spectacularly apart.
RADIO NEWS: The troubled
construction firm, Carillion,
has been placed into liquidation...
Well, it's difficult to understate
the significance of
Carillion's collapse...
The Carillion scandal exposed
a vast firm taking billions of
pounds of public money that for
years had cooked its books...
He would simply say
to the management,
"Go back and do the numbers again."
...run by directors who walked from
the wreckage massively enriched...
They justified big bonuses
to themselves.
Mr Howson, will you give your
bonuses back? No.
...leaving hospitals unbuilt
and smaller firms with over a
billion pounds of unpaid bills.
The simple word to use is abuse.
Tonight, for the first time,
insiders reveal what really
happened at the super giant.
It was a culture of fear
and confusion,
and I think deliberately so.
Why did those meant to protect
the British people stand by
and watch it happen?
It's a shame that the regulators
didn't see what other people saw.
Why did the government promise
Carillion hundreds of millions
of pounds of public money, as the
company careered towards the edge?
The government should not have given
Carillion so much work,
and it didn't have to do it.
As the ruins of Carillion lie
around her, will the Prime Minister
act to end this costly racket
of the relationship between
government and some of these
companies? Hear, hear.
Carillion went bust with liabilities
of up to 7 billion.
But this is a story about way more
than one company.
It's about whether the British
public can have faith in
private firms delivering
public services.
It's about jaw-dropped failures
at the heart of our business and
political establishments.
And it's about how capitalism
in this country really works -
or fails to work.
How can a scandal on the scale
of Carillion have been allowed
to happen? And how can we make sure
it never happens again?
This time last year,
Carillion was one of the UK's
biggest construction firms, boasting
annual revenues of over 5 billion
and hundreds of public contracts.
It built hospitals,
it built schools, it built roads,
it built bridges.
It made sure the trains ran on time.
This company was not just
a construction company,
it affected all of our lives.
Founded in 1999,
Carillion scored an early triumph
on the South Bank of the Thames.
As the millennium dawned, the vast
Tate Modern Gallery rose from
the shell of an old power station.
It was a spectacular achievement
for a brand new firm.
Carillion was clearly very
ambitious from the outset.
It bought a number of companies,
hundreds of millions of pounds,
it bolted them together to form
this, if you like,
contracting super group.
It acquired McAlpine, Mowlem,
a bit of John Laing,
and it also made acquisitions
overseas as well.
So it wasn't just trying to
be big in the UK,
it was trying to be big all
round the world.
But it didn't seem to be
constrained by caution.
It didn't seem to be constrained
by the fact that it had its
fingers in so many different pies
and so many different areas.
And it didn't seem to be constrained
in its corporate ambition,
in that it kept buying other
companies.
As Carillion's construction empire
spread across the world, it
began pursing another huge source
of profits, as the UK Government
outsourced more and more public
services to private companies.
Traditionally, builders built
things, but now builders were
getting into all kinds of other
business too, from delivering
school meals to cleaning prisons
and collecting rubbish.
These state contracts plugged
builders into a hydrant of
public money. Carillion sucked up
all it could get.
Outsourcing was soon Carillion's
biggest earner.
But the good times weren't to last.
Stock markets have gone into
freefall after the collapse of
Lehman Brothers... There is unease,
there is uncertainty...
After the financial crisis of 2008,
successive governments tried
to drive down costs for public
services, prioritising the lowest
bids from private companies, even
if the numbers were unrealistic.
According to a recent Parliamentary
inquiry, that meant poorer
public services and lower profits
for companies like Carillion.
Carillion had two options. It could
choose to accept less profit,
or it could change the way it did
the sums on a particular project
to make it look as if the project
was making profit, was making money.
Unfortunately, Carillion chose
the latter option.
Unseen by the public,
Carillion began to hide the serious
financial trouble it was
getting into.
Among the unsuspecting victims
were the people of Liverpool,
who'd been promised a replacement
for their ramshackled old hospital,
to the relief of one local MP.
We were expecting a new
hospital in Liverpool,
the university was expected with
all its frontier work that it's
doing in dealing with cancer.
This was to be a major breakthrough.
Carillion's new Royal Liverpool
University Hospital was meant
to be a national flagship,
proving how private companies could
deliver cutting edge
services for the NHS.
But it soon ran into problems.
First,
asbestos was discovered on the site.
Then, cracks appeared in massive
concrete beams already
embedded into the hospital.
An internal Carillion report said
the company was on course to
lose millions on the project.
That warning was overridden
by management.
They publicly claimed the hospital
would make a profit, setting
down over 50 million of additional
revenue in the company accounts.
In reality, the Royal Liverpool
was making big losses,
but now it looked, at least on
paper, like a big earner.
And the Royal Liverpool
wasn't a one-off.
Carillion had problems
all over the place.
It had the Midland Met,
it had Battersea Power Station,
it had the Aberdeen bypass,
all of them late, all over budget.
Time and again, Carillion reported
as profitable projects that
were really making massive losses.
But who at Carillion was responsible
for all this behind the
scenes aggressive accounting?
Richard Howson became Carillion's
chief executive in 2012
at the age of 43.
Richard Howson was an
engineer by training.
I suspect he remained somebody
who understood building,
understood contracts, because that
was his bread and butter, but
when it came to understanding how a
big company works he was not so hot.
After the collapse,
Carillion's former directors
appeared before a House of Commons
Select Committee, one of several
investigations into the scandal.
My name's Richard Howson.
I worked with Carillion
for 22 years, just over.
One committee member was
former criminal barrister
Antoinette Sandbach.
Richard Howson wasn't
a details person.
He wasn't drilling down
sufficiently.
In fact, Richard Howson was running
around the Middle East trying
to pick up payments.
He was effectively a debt collector.
Did you really think he
was across the numbers?
I felt that he probably
wasn't across the numbers.
I think Richard Adam was
across the numbers.
Richard Adam was Carillion's finance
director until a year before
its collapse. He was meant to be
junior to CEO Richard Howson.
Good morning.
My name is Richard Adam.
I believe during my tenure
the company was healthy.
One man who dealt with Carillion's
senior management is
financial analyst Stephen Rawlinson.
As he explains in his first
TV interview,
he had serious concerns about
Richard Adam.
If I was in an analyst meeting and
a question came from the floor
which related to finance,
Richard Howson was chief executive,
so normally you'd expect him to
invite the FD to give an answer.
That didn't happen with Carillion,
it was most unusual.
Richard Adam would come in
straightaway and answer the
question at quite a pace, in order
to actually make sure that he
was the one who was consistently
answering all those questions.
Richard was a very forceful
character.
What he was able to do is use
accounting treatments to
deceive... That's a hard word,
sorry, to create the impression
the company being in a healthier
financial situation than it was.
Finance supremo Richard Adam's
dominance is confirmed by members
of Carillion's senior staff, some
of whom are starting to speak out.
I think he was absolutely totally
responsible for that culture.
You know, I think in their
terms it was fearful, you know, it
was get this done because, you know,
otherwise there'll be consequences.
When the numbers didn't come to
where he wanted them to be, he
would simply say to the management
go back and do the numbers again.
Richard Adam told us he doesn't
recognise these views, and he's not
aware of any such accusations being
raised while he worked at Carillion.
Meanwhile, the company strove
to win more and more contracts,
even for tiny or
non-existent profits.
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 and pretending
that it's an investment return.
Carillion was doing the same thing.
Eventually, both Ponzi schemes
and Carillion cannot get enough
new money through the door
and they collapse.
To complete the illusion,
shareholders were lavished
with rising dividend payments
each and every year.
They were trying to make this
company always look better
than it was. Dividends are a signal
to shareholders that "look,
everything's fine", and therefore
keeps the share price up.
It also justifies bonuses
to directors.
In 2013, Richard Howson and
Richard Adam between them took home
pay packets of almost 2 million.
But it was a different story for the
30,000 smaller firms, from builders
to plumbers to gardeners, Carillion
relied on to actually do the work.
Near Cambridge, Andy Bradley's
business was under increasing
pressure. We started working for
Carillion in 2004.
They were using every trick in the
book to delay paying people.
We started off on 45 clays,
then it went to 65 days.
They would delay issuing purchase
orders for work, so that you
couldn't actually send an
invoice in.
Very difficult, particularly in
December, Christmas time,
where we tend to pay
the staff early.
They just didn't seem
to bother about that.
The simple word to use is abuse.
It was so incredibly irresponsible,
and I suspect that it was done
because it was possible to do
so, it was possible to get away
with it for so many years.
But things were about to change.
Even though the government
kept throwing public money at
Carillion, a small number of
sharp-eyed investors here in
the City of London began to suspect
that something wasn't quite right.
And as Carillion pushed the fantasy
ever further, its secrets
would start to leak out.
You can't run a business forever,
without the company generating cash.
Somewhere along the line,
it has to give, and it gave.
Spring 2013.
From their Wolverhampton
headquarters,
the directors of construction super
giant Carillion had convinced
the world their company
was a success.
But for some,
the accounts didn't quite stack up.
My name is Tim Steer, and up
to 2015, I was a hedge fund manager.
Hedge funds are investors who
forensically analyse company
accounts, making bets on who
will succeed and who will fail.
One of the things to remember in
looking at a set of accounts
is that cash is fact and everything
else is a matter of opinion.
And there were a couple of things
in the balance sheet that
concerned me from early on.
One, Carillion never seemed to
generate cash and, secondly,
the debt throughout the year was
much, much higher than the debt they
reported in the balance sheet.
The company's accounts
is an iceberg.
If you see something bad above the
waterline, there's bound to be
a lot worse below the waterline.
So, get frightened.
Now, hedge fund managers like
Tim Steer started betting against
Carillion, gambling its shares
would plummet,
as the company headed for trouble.
Over four years before Carillion
collapsed, there were clear
warning lights going off across the
City of London, yet still the
Government kept awarding the company
vast public sector contracts.
And things were about to get even
worse - the financial black
hole of the heart of Carillion
would soon grow even bigger.
With its suppliers under pressure,
another vast group who relied
on Carillion were about to
suffer too - the 27,000 members
of the company's pension schemes.
While splashing out ever-rising
dividends, Carillion had run
up a pensions shortfall of hundreds
of millions of pounds.
The man in charge of Carillion's
pension funds tried to
convince the company to bring
that shortfall down,
as he explains in his first TV
interview since the collapse.
Of the company, and they weren't
prepared to pay that.
Were we worried for members?
Yes, we were.
Did we do our best to try and
recover it? Yes, we did.
And the difference in this case,
which was unique in my
experience, was that they were
in a non-negotiating mode.
What's it like negotiating
with Richard Adam?
Well, he's a tough guy,
and it's because he's a tough guy
that he was hired by the company.
And it's up to the chairman
of the pension trustees...
To negotiate their way out of it.
..the regulator and the law... Yeah.
...to push back. Yes.
But he wasn't in negotiating mode.
He was struggling to be in
negotiating mode. Yeah. Absolutely.
Yeah.
And he signs the cheque and I don't.
There's not much more we can
do to force him to sign up,
apart from embarrass him,
and they weren't embarrassed.
In April 2013, Robin Ellison
called a meeting with the
Pensions' Regulator,
the UK's official watchdog.
The Pensions' Regulator exists
to make sure that UK pension
schemes are properly run.
It has to the power to force
companies to pay more into
their pension funds.
But despite the pleas of
Robin Ellison on behalf
of 27,000 Carillion pension scheme
members, and the millions
draining out of the company each
year in dividends and bonuses,
the Pensions' Regulator made a few
empty threats and did nothing.
The Pensions' Regulator has
argued it was pressured by the
Government to be friendlier
to business.
So Carillion's management
got their way
and the pension shortfall
got bigger.
They didn't act quickly enough.
That's what they're there for.
They're there to protect us,
the consumers,
us the small shareholders,
us the pensioners,
and those receiving services
from Carillion.
And I really think the regulators
need to step up to the plate.
A major public watchdog had failed
to stand up to Carillion.
But while meetings continued
behind closed doors,
news of the company's lack of cash
was about to go public.
In March 2015, the investment bank,
UBS, had a look at Carillion,
and they produced a note for
their investors saying sell...
Sell their shares.
UBS pointed out Carillion's vast
pension shortfall and the
huge sums owed to thousands
of suppliers.
It wasn't feasible,
said UBS, for Carillion to flatter
its accounts any longer.
For years, hedge funds had privately
questioned Carillion's accounts,
but this was different. Now UBS,
a mainstream Swiss megabank,
was publicly raising concerns about
the true level of Carillion's debts.
It was a clear warning that
Carillion, which was getting over a
billion pounds a year of taxpayers'
money, was heading for trouble.
But as board minutes reveal,
the man in charge of the money at
the company didn't seem worried.
Richard Adam felt that statement
was "disappointing".
Adam said, "These are issues that
could apply to any organisation."
But UBS wasn't talking
about any organisation.
These issues were specific
to Carillion,
specific reasons it was
heading for trouble.
I'm not sure to what extent
Richard Adam was revealing the true
position to the board.
Richard Adam at the time was very
aloof, seen as very controlling.
He made the numbers look better,
without tackling the fundamental
issues in the company, which is
what a director should do, right?
He was being allowed to run all
of the financial aspects of the
business without proper
interrogation or questioning.
Richard Adam told MPs he didn't
produce numbers that misled
his colleagues and that he acted
with complete transparency.
He's also told us that throughout
his time at Carillion all of
its accounts were approved
by the board and audited.
Adam's work was meant to be overseen
by Carillion's board of directors.
Part-time non-executive
directors took home
between 28 and 60,000 a year.
In the company's own words they were
there to "challenge the business".
They were shameful in this.
It was their duty to go in and
to stand up and say this is
actually unacceptable,
and they didn't.
They were totally addicted to
the teat of those large cheques.
Chairman of the Board was Philip
Green, not the retail tycoon,
but the well-connected former
advisor to Downing Street on
corporate responsibility.
How much did you draw out
of the company, Mr Green?
My fee as a non-executive
was about 50,000,
and my fee as a chairman
was 220,000.
So in total,
since 2011 you've got - you had?
I estimated about 900,000
over seven years.
MPs have concluded that Philip Green
was one of those to blame
for Carillion's collapse.
He says he disagrees with many
of their conclusions,
but can't comment because of
ongoing investigations.
Industry heavyweight Paul Lester
has led some of Britain's biggest
construction companies.
The bottom line is the board
is responsible - full stop.
You know, the chairman,
the non-execs and the executives
are responsible for a company's
performance.
You can have hard luck stories, you
can have good luck stories, but at
the end of the day, it's about those
people that manage the business.
One to ten, ten's a good job,
how did the board do?
Who am I to say? I'm a chairman
sitting on various boards.
You're one of the most experienced
construction executives
in this country. I mean, the obvious
answer to that is one.
But if the board were asleep
at the wheel, others weren't.
From late 2015, around a quarter of
Carillion shares were used by hedge
funds in bets that the company's
value was going to collapse.
That was for more than any other
company on the London Stock
Exchange. The business model at
Carillion just wasn't working.
It wasn't generating cash.
You can't keep going back to banks,
can't keep going back to
shareholders, can't keep extending
credit from sub-contractors to
keep your business on the road.
But if the hedge funds and UBS
were warning Carillion was heading
for trouble, what was the reaction
from the company's biggest customer?
The UK Government had hundreds
of contracts run by Carillion,
from delivering school meals to
maintaining houses for soldiers.
It said it knew about the warnings
and discussed them
with Carillion's management.
The government operates a traffic
light system for major suppliers.
Companies with no known issues
are labelled green.
Those causing concerns are amber,
while significant concerns
mean red.
Government officials say Carillion
assured them the hedge funds
were wrong.
So throughout 2016, the company
stayed on amber.
Meanwhile, Carillion had just been
awarded another huge government
contract to build the Midland Met
super hospital near Birmingham.
Two years later,
it's still a building site.
Few have more insider experience
of how the government spends
public money than Sirjohn Bourn.
As Head of the National Audit Office
for two decades,
he scrutinised public expenditure,
but has never given a TV
interview until Carillion.
The Government should not,
in my view,
have given Carillion so much work.
And it didn't have to do it.
You could see that Carillion
was in trouble.
It was all rather like, I thought,
a Ponzi scheme, because it was
taking small contracts as a way of
keeping the bigger contracts going.
How would you describe the
Government scrutiny of Carillion?
I was surprised that the Government
had gone on giving it contracts.
Here's an enormous strategic
suppfien
We would have 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.
How would you sum up the
Government's scrutiny of Carillion?
Inadequate.
Yet, even the huge public contracts
it won couldn't shore up
Carillion's debt-soaked foundations.
And in 2016, directors drained yet
more cash out of the company
in another record shareholder
dividend.
The trick they were playing
was borrowing money to keep
paying dividend payments on
the basis that if we do that,
nobody will look much
at the account.
A company with hundreds
of government contracts,
with billions of pounds
of taxpayers'
money is issuing accounts that you
think were deliberately opaque.
I think it's more than
deliberately opaque.
They were there to mislead.
In 2016, Richard Howson and
Richard Adam between them took home
bonuses of nearly 400,000.
Then in December that year,
Richard Adam retired from Carillion.
Just three months after he left,
he sold every single Carillion
share he held, washing his hands
of any stake in the company's
future and netting himself
over half a million pounds.
Richard Adam gave his own
explanation for selling those
shares to MPs investigating
Carillion's collapse.
I don't have a share portfolio.
I don't own shares of any
substance in any company.
I don't take that sort of risk.
At least one committee member
wasn't convinced.
To me, the evidence that he gave
stretched credulity.
Do you think he was being
deliberately vague?
I think he was evasive.
That's quite a strong word. Yes.
How would you sum up the evidence
that you heard from Richard Adam?
Suspicious.
Richard Adam told us he rejects
the accusations made about him in
this programme. He says he
discharged his duties in good faith
and to the best of his abilities.
Richard Adam told MPs investigating
Carillion's collapse that their
searing conclusions about his role,
independently echoed in this film by
insiders and other industry experts,
were unjustified and unwarranted.
The timing of Richard Adam's
retirement worked out well.
A year after he left Carillion,
the half a million pounds of
shares he'd sold were worth
not a single penny.
Spring 2017.
Carillion had constructed a
fortress of phoney profits
and mounting debts.
But how long before
it all came tumbling down?
So, this is Carillion's 2016
annual report.
Pre-tax profits were
apparently 178 million,
and based on that, Carillion paid
out a blockbuster 79 million
dividend, a record even for this
big spending company.
But was this a genuine annual
report, or was it a work of fiction?
The balance sheets projected a sense
of wellbeing, but actually,
when you dug down, there
were certainly issues.
It looked to me as if debt
was actually understated.
For someone who bothered to look
at them and enquire, they were a
very poor set of accounts.
I think the company was essentially
insolvent as far back as 2016,
and possibly even before then.
And the question is how did the
accounting standards allow
them to get away with this and what
were the auditors thinking of?
KPMG were Carillion's auditors
throughout the 19 years of
the company's existence.
Each year, they'd sign off on
figures provided by Carillion,
certifying that the accounts
showed a true and fair picture.
In return,
KPMG pocketed 29 million in fees,
and never once did they warn
of the catastrophe to come.
KPMG maintain they acted
appropriately and responsibly
at Carillion, but if that's so,
what's the point of auditors?
Auditors cannot just tick boxes
and say this meets the rules,
that's fine. They have to challenge.
They have to question.
They don't do that at the moment.
The 2016 annual report had
one more telling detail.
Tucked away on page 78 was a change
to the rules governing bonuses.
According to these new company
rules, the only reasons for senior
executives to hand back
their bonuses would be a
restatement of accounts, or if
they were prosecuted for gross
misconduct, both highly unlikely.
Nowhere do these new rules say
that bonuses would be handed back
if the company collapsed.
Carillion claimed the change made
it easier to claw back bonuses.
Directors should be accountable
for their failings and they
should not be rewarded for them.
But to change it then, just before
the implosion, months, weeks before.
It was really disgusting.
And if they have been shown to
made misleading decisions, or have
misrepresented the position
of the company...
A record dividend just before
implosion. ..then I think...
How can that not be misleading?
...the book should be thrown at them,
but that is not a decision for me.
That is a decision that has to be
taken by those that regulate.
Should we see a legal case here,
be it some kind of class action
by shareholders?
I think it is something that the
insolvency service will be
looking at. It is something that the
regulators will be looking at.
But I... Possible criminal
prosecution? Possible?
There are grounds for investigation
that on the evidence
that I have seen.
The regulator is looking
at any criminal acts,
so the Carillion board, however
they suppress the horrible truth,
ought not to be resting easily
in their beds.
So far, no senior Carillion manager
had dared to question the regime,
but that was about to change.
Emma Mercer had been
at the coalface.
She'd seen much more closely how
Carillion's finances were going.
She was promoted and within
six weeks, she was pointing out
that the accounts didn't make
a great deal of sense.
What she was saying is,
you know what,
we didn't make that money,
you know, the cash isn't there.
That's the true measure of whether
we made the money or not,
and you're able to cover up that
cash picture quite considerably,
and that's what you've been doing.
So I think we'd better go and tell
the shareholders, you know what,
that 845 million that we've made
over the last five years?
Well, in truth, we haven't.
She was the only one who had any
sense about what her duty was and
what her sense of public duty was,
combined with that to the company.
As Emma Mercer spoke out about
financial recklessness at the
company, comfortably retired
ex-finance director, Richard Adam,
received another quarter of a
million pounds of Carillion shares.
He sold them on the spot.
Carillion's board of directors
were now told Mercer had
discovered a vast hole in the
company's accounts.
According to minutes of that
meeting, none of them had any idea
of the scale of the financial crisis
facing the company.
If they had oversight, why did they
not do something about it sooner?
But if they had not known what
was going on, then they were not
doing their jobs.
It's one or the other.
It is either they are complicit
in this, or they are incompetent.
Yet, despite Mercer's warnings, an
auditor from KPMG said there was no
need to make any public restatements
of Carillion's accounts.
Chairman Philip Green and the rest
of the board agreed.
But the thread Emma Mercer had
pulled started to unravel the
whole Carillion web.
Soon, it was discovered that
the company's fantasy income
was 845 million, and that hole
was impossible to hide.
We're on our way to an HR
leadership conference,
so the radio that morning
was full of this news.
RADIO: Carillion's Chief
Executive, Richard Howson,
is resigning without a
permanent replacement.
The company has also issued
a profits warning...
After years of secrets, the shocking
state of Carillion's finances
was finally revealed to the public.
On the 10th July, we get a profit
warning, but not an ordinary profit
warning, a profit warning like the
City has not seen for generations.
845 million was not there.
A profit warning of 845 million
is pretty much as big as it gets.
A City bloodbath wiped 70% off
Carillion's shares in just two days.
Government officials say they
were taken by surprise and that
Carillion misled them.
Others weren't so shocked.
No surprise.
I don't think anybody was surprised
in the industry because of
all the questions that were being
asked over the last few years
by the hedge funds in particular,
but it came down at the end to cash.
Chief Executive Richard Howson
had come to the end of the road.
But when Parliament issued a
scathing report into Carillion,
reflecting what our insiders and
experts have also said, Howson
told MPs they'd failed properly to
analyse the evidence and hadn't
understood the complexity of the
markets in which Carillion works.
Howson admits Carillion's debts were
too high, but says that after he
left, more should have been done to
collect money the company was owed.
Carillion was now in free-fall,
but suddenly a savour appeared with
a sack full of taxpayers' cash.
NEWS REPORT: The government
announced it was awarding a major
contract to a construction company
in financial trouble.
Carillion issued a profit warning
and lost 70% of its value,
prompting concerns its involvement
will cause delays.
Barely a week after the catastrophic
profit warning, the Government
announced Carillion as one of the
contractors for the HS2 train
line, the first of almost 2 billion
of Government work to be
announced after the profit warning.
The Government says it made sure
Carillion worked with
partners, who would finish the
job if it went bust.
Yet, Britain's longest serving
Auditor General was appalled.
You couldn't have had a better
warning to be careful.
I asked some colleagues why this
was, and I had this answer.
Well, a lot of the contracts
you've got three collaborators,
so if one goes down,
there's still two left.
But that doesn't get away from
the fact that it wasn't a good
idea to give it anyway to a company
with such a dicey position,
in terms of its own money.
With almost 2 billion of public
money heading its way,
few in autumn 2017 thought Carillion
would go into total collapse.
But the profit warning
was just the beginning.
Soon, the firm would be forced
to confess its cash black hole
was even bigger, and a company
with hundreds of vital Government
contracts would finally
head over the cliff.
Late 2017.
As Carillion reeled from a
colossal profit warning,
a second shock announcement revealed
the hole in the company's
accounts was now over
a billion pounds.
The Government was watching
Carillion closely,
but what action did ministers take?
Carillion had finally been moved up
to the red risk category, but
now Government officials recommended
escalating it to the even higher
black category, making it harder for
Carillion to get Government work.
The company told politicians
that would send it bust.
The black category is for companies
about to go over the brink.
It's a way to stop throwing good
public money after bad and
begin damage limitation.
But despite profit warnings, and now
the advice of the Government's
own officials, ministers still
failed to escalate Carillion
to the highest category of risk.
One of the things that you really
need to look at, a simple test,
is how much cash has it got and
is it paying its suppliers?
Well, if you looked at Carillion,
an enormous company,
I think it had 29 million in cash
when it went down. Peanuts. Peanuts.
And it was not paying its suppliers,
so you could say from this
very simple test that there
was something wrong with it.
Up and down the country,
Carillion's 19,000 employees
and 30,000 subcontractors waited
for news of their money and jobs.
We thought well,
they're too big to fail.
We were talking to our contacts
in Carillion and they were
saying the word from the business
was everything's fine.
But the truth was very different.
Despite the vast injection
of public money,
Carillion was still bleeding cash.
Things came to a head in January,
when Carillion essentially
just ran out of money.
The cash just wasn't there.
So they tried to borrow more money.
They tried first to borrow it from
the banks, and the banks said no.
It was forced to go to the
Government and say we need
millions of pounds more money.
The very fact that the directors
thought that just a short
term loan from the Government would
tide them over just shows how
divorced from reality
they had become.
And that is the real problem, the
mind-set of Carillion's management.
But it seems Carillion's coffers
weren't completely dry.
On the brink of collapse the company
actually paid out 6.4 million,
not to its thousands
of subcontractors,
but to its well-connected lawyers
and accountants.
They got their bills paid.
Meanwhile, Carillion was begging
for a quarter of a billion
Government rescue package.
The day after the lawyers
and accountants got paid,
Chairman Philip Green sent a top
secret letter
to the Cabinet Office.
The letter warns that if the
Government provides no new
funding, Carillion would have no
ability to manage the impact
on our customers or suppliers or,
in the extreme, the physical
safety of Carillion employees or the
members of the public they serve.
Philip Green was telling, or perhaps
threatening the Government,
that if Carillion wasn't funded,
the safety of the British public
would be under threat.
It was his final roll of the dice.
It was very nerve-racking
over that weekend.
And then on the Monday someone sent
me a text at half past seven.
The Government said no, they weren't
going to cough up any more money.
They'd gone under.
NEWS REPORT: It's 7 o'clock on
Monday the 15th January.
The troubled construction
firm, Carillion,
has been placed into compulsory
liquidation with immediate effect.
I was absolutely amazed.
Nobody realised quite how
bad it was.
We were expecting the company
to be split up,
but never at any point did we think
it would be put into liquidation.
Yeah, that was a big shock.
It took the government to say no
for the fantasy to finally
come to an end.
So we found out they'd gone bust
at 7.30 in the morning,
and we, I, started to let good
people go at about 10 o'clock.
Some of them I'd known
for years and years.
I mean, they were not just
employees, they were friends.
In a small business, you
know everybody, you know,
people aren't a number here.
We know their names,
where they live, their kids' names.
You feel cheated, particularly
in the way that clearly the
leadership team within Carillion
were operating.
In February 2018, Carillion's former
directors hung their heads in shame.
Could I just say how saddened
that I am by all of the events?
I am deeply sorry.
I, too, would like to say how deeply
saddened and how sorry I am.
But not a single one of them has
handed back a penny of the
millions of pounds of pay and
bonuses that between them
they received from the company.
Mr Howson, will you give your
bonuses back? No.
Emma Mercer had told the
truth about Carillion,
but lost her job as the
company went down.
She is a shining example, but even
she couldn't pull this crew back
from what they were intent on doing,
or didn't care what they were doing.
I think good on her
that she did that.
A pity she wasn't in that position
many years before.
But the recklessness inside
Carillion was made possible
by a system that failed,
from the Pensions' Regulator...
There was no real pressure applied
to Carillion to make sure that
a burgeoning debt in its pensions
fund was actually dealt with.
...to the auditors meant to
scrutinise the accounts.
The world relies on these
accountants to make sure that
accounts are presented correctly,
and if that fails, there's a
question mark about whether or not
capitalism can be sustained in the
way it currently operates.
While politicians sent billions
more in public funds to Carillion,
despite the clear signs the
company was in trouble...
It was a disappointment and a
disappointment that didn't
have to happen.
...the Official Receiver says that
when Carillion collapsed, its
liabilities were up to 7 billion,
though the final
costs won't be known for years.
The firm's record pension deficit
will be bailed out by other
UK workplace pension schemes.
And thousands of smaller businesses
have been left with
Carillion's debts.
We're still here six
months down the line,
but good people lost jobs,
lost their homes.
They've known for a number of years
that it was built on sand and
they hid things. It's deceitful.
They went bust owing us around
half a million pounds,
and I don't think we're really
going to see anything of it back.
Carillion was founded on
bricks and mortar,
but this is really a story
about two groups of people.
On the one side, reckless directors,
toothless regulators and politicians
who look the other way.
On the other, staff who lost jobs,
short-changed taxpayers and
subcontractors who will
never be paid.
The tragedy of Carillion
is that those firms,
those employees were working
hard and working for Britain.
Their energy and expertise could
still deliver some of the
best public services in the world.
Instead of allowing them to be
ripped off while corporate
recklessness is ignored, we need
a system that scrutinises
exactly where billions of pounds
of public money's going,
otherwise there'll only be
more Carillions,
and next time,
the losses could be even greater.
Together fell spectacularly apart.
RADIO NEWS: The troubled
construction firm, Carillion,
has been placed into liquidation...
Well, it's difficult to understate
the significance of
Carillion's collapse...
The Carillion scandal exposed
a vast firm taking billions of
pounds of public money that for
years had cooked its books...
He would simply say
to the management,
"Go back and do the numbers again."
...run by directors who walked from
the wreckage massively enriched...
They justified big bonuses
to themselves.
Mr Howson, will you give your
bonuses back? No.
...leaving hospitals unbuilt
and smaller firms with over a
billion pounds of unpaid bills.
The simple word to use is abuse.
Tonight, for the first time,
insiders reveal what really
happened at the super giant.
It was a culture of fear
and confusion,
and I think deliberately so.
Why did those meant to protect
the British people stand by
and watch it happen?
It's a shame that the regulators
didn't see what other people saw.
Why did the government promise
Carillion hundreds of millions
of pounds of public money, as the
company careered towards the edge?
The government should not have given
Carillion so much work,
and it didn't have to do it.
As the ruins of Carillion lie
around her, will the Prime Minister
act to end this costly racket
of the relationship between
government and some of these
companies? Hear, hear.
Carillion went bust with liabilities
of up to 7 billion.
But this is a story about way more
than one company.
It's about whether the British
public can have faith in
private firms delivering
public services.
It's about jaw-dropped failures
at the heart of our business and
political establishments.
And it's about how capitalism
in this country really works -
or fails to work.
How can a scandal on the scale
of Carillion have been allowed
to happen? And how can we make sure
it never happens again?
This time last year,
Carillion was one of the UK's
biggest construction firms, boasting
annual revenues of over 5 billion
and hundreds of public contracts.
It built hospitals,
it built schools, it built roads,
it built bridges.
It made sure the trains ran on time.
This company was not just
a construction company,
it affected all of our lives.
Founded in 1999,
Carillion scored an early triumph
on the South Bank of the Thames.
As the millennium dawned, the vast
Tate Modern Gallery rose from
the shell of an old power station.
It was a spectacular achievement
for a brand new firm.
Carillion was clearly very
ambitious from the outset.
It bought a number of companies,
hundreds of millions of pounds,
it bolted them together to form
this, if you like,
contracting super group.
It acquired McAlpine, Mowlem,
a bit of John Laing,
and it also made acquisitions
overseas as well.
So it wasn't just trying to
be big in the UK,
it was trying to be big all
round the world.
But it didn't seem to be
constrained by caution.
It didn't seem to be constrained
by the fact that it had its
fingers in so many different pies
and so many different areas.
And it didn't seem to be constrained
in its corporate ambition,
in that it kept buying other
companies.
As Carillion's construction empire
spread across the world, it
began pursing another huge source
of profits, as the UK Government
outsourced more and more public
services to private companies.
Traditionally, builders built
things, but now builders were
getting into all kinds of other
business too, from delivering
school meals to cleaning prisons
and collecting rubbish.
These state contracts plugged
builders into a hydrant of
public money. Carillion sucked up
all it could get.
Outsourcing was soon Carillion's
biggest earner.
But the good times weren't to last.
Stock markets have gone into
freefall after the collapse of
Lehman Brothers... There is unease,
there is uncertainty...
After the financial crisis of 2008,
successive governments tried
to drive down costs for public
services, prioritising the lowest
bids from private companies, even
if the numbers were unrealistic.
According to a recent Parliamentary
inquiry, that meant poorer
public services and lower profits
for companies like Carillion.
Carillion had two options. It could
choose to accept less profit,
or it could change the way it did
the sums on a particular project
to make it look as if the project
was making profit, was making money.
Unfortunately, Carillion chose
the latter option.
Unseen by the public,
Carillion began to hide the serious
financial trouble it was
getting into.
Among the unsuspecting victims
were the people of Liverpool,
who'd been promised a replacement
for their ramshackled old hospital,
to the relief of one local MP.
We were expecting a new
hospital in Liverpool,
the university was expected with
all its frontier work that it's
doing in dealing with cancer.
This was to be a major breakthrough.
Carillion's new Royal Liverpool
University Hospital was meant
to be a national flagship,
proving how private companies could
deliver cutting edge
services for the NHS.
But it soon ran into problems.
First,
asbestos was discovered on the site.
Then, cracks appeared in massive
concrete beams already
embedded into the hospital.
An internal Carillion report said
the company was on course to
lose millions on the project.
That warning was overridden
by management.
They publicly claimed the hospital
would make a profit, setting
down over 50 million of additional
revenue in the company accounts.
In reality, the Royal Liverpool
was making big losses,
but now it looked, at least on
paper, like a big earner.
And the Royal Liverpool
wasn't a one-off.
Carillion had problems
all over the place.
It had the Midland Met,
it had Battersea Power Station,
it had the Aberdeen bypass,
all of them late, all over budget.
Time and again, Carillion reported
as profitable projects that
were really making massive losses.
But who at Carillion was responsible
for all this behind the
scenes aggressive accounting?
Richard Howson became Carillion's
chief executive in 2012
at the age of 43.
Richard Howson was an
engineer by training.
I suspect he remained somebody
who understood building,
understood contracts, because that
was his bread and butter, but
when it came to understanding how a
big company works he was not so hot.
After the collapse,
Carillion's former directors
appeared before a House of Commons
Select Committee, one of several
investigations into the scandal.
My name's Richard Howson.
I worked with Carillion
for 22 years, just over.
One committee member was
former criminal barrister
Antoinette Sandbach.
Richard Howson wasn't
a details person.
He wasn't drilling down
sufficiently.
In fact, Richard Howson was running
around the Middle East trying
to pick up payments.
He was effectively a debt collector.
Did you really think he
was across the numbers?
I felt that he probably
wasn't across the numbers.
I think Richard Adam was
across the numbers.
Richard Adam was Carillion's finance
director until a year before
its collapse. He was meant to be
junior to CEO Richard Howson.
Good morning.
My name is Richard Adam.
I believe during my tenure
the company was healthy.
One man who dealt with Carillion's
senior management is
financial analyst Stephen Rawlinson.
As he explains in his first
TV interview,
he had serious concerns about
Richard Adam.
If I was in an analyst meeting and
a question came from the floor
which related to finance,
Richard Howson was chief executive,
so normally you'd expect him to
invite the FD to give an answer.
That didn't happen with Carillion,
it was most unusual.
Richard Adam would come in
straightaway and answer the
question at quite a pace, in order
to actually make sure that he
was the one who was consistently
answering all those questions.
Richard was a very forceful
character.
What he was able to do is use
accounting treatments to
deceive... That's a hard word,
sorry, to create the impression
the company being in a healthier
financial situation than it was.
Finance supremo Richard Adam's
dominance is confirmed by members
of Carillion's senior staff, some
of whom are starting to speak out.
I think he was absolutely totally
responsible for that culture.
You know, I think in their
terms it was fearful, you know, it
was get this done because, you know,
otherwise there'll be consequences.
When the numbers didn't come to
where he wanted them to be, he
would simply say to the management
go back and do the numbers again.
Richard Adam told us he doesn't
recognise these views, and he's not
aware of any such accusations being
raised while he worked at Carillion.
Meanwhile, the company strove
to win more and more contracts,
even for tiny or
non-existent profits.
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 and pretending
that it's an investment return.
Carillion was doing the same thing.
Eventually, both Ponzi schemes
and Carillion cannot get enough
new money through the door
and they collapse.
To complete the illusion,
shareholders were lavished
with rising dividend payments
each and every year.
They were trying to make this
company always look better
than it was. Dividends are a signal
to shareholders that "look,
everything's fine", and therefore
keeps the share price up.
It also justifies bonuses
to directors.
In 2013, Richard Howson and
Richard Adam between them took home
pay packets of almost 2 million.
But it was a different story for the
30,000 smaller firms, from builders
to plumbers to gardeners, Carillion
relied on to actually do the work.
Near Cambridge, Andy Bradley's
business was under increasing
pressure. We started working for
Carillion in 2004.
They were using every trick in the
book to delay paying people.
We started off on 45 clays,
then it went to 65 days.
They would delay issuing purchase
orders for work, so that you
couldn't actually send an
invoice in.
Very difficult, particularly in
December, Christmas time,
where we tend to pay
the staff early.
They just didn't seem
to bother about that.
The simple word to use is abuse.
It was so incredibly irresponsible,
and I suspect that it was done
because it was possible to do
so, it was possible to get away
with it for so many years.
But things were about to change.
Even though the government
kept throwing public money at
Carillion, a small number of
sharp-eyed investors here in
the City of London began to suspect
that something wasn't quite right.
And as Carillion pushed the fantasy
ever further, its secrets
would start to leak out.
You can't run a business forever,
without the company generating cash.
Somewhere along the line,
it has to give, and it gave.
Spring 2013.
From their Wolverhampton
headquarters,
the directors of construction super
giant Carillion had convinced
the world their company
was a success.
But for some,
the accounts didn't quite stack up.
My name is Tim Steer, and up
to 2015, I was a hedge fund manager.
Hedge funds are investors who
forensically analyse company
accounts, making bets on who
will succeed and who will fail.
One of the things to remember in
looking at a set of accounts
is that cash is fact and everything
else is a matter of opinion.
And there were a couple of things
in the balance sheet that
concerned me from early on.
One, Carillion never seemed to
generate cash and, secondly,
the debt throughout the year was
much, much higher than the debt they
reported in the balance sheet.
The company's accounts
is an iceberg.
If you see something bad above the
waterline, there's bound to be
a lot worse below the waterline.
So, get frightened.
Now, hedge fund managers like
Tim Steer started betting against
Carillion, gambling its shares
would plummet,
as the company headed for trouble.
Over four years before Carillion
collapsed, there were clear
warning lights going off across the
City of London, yet still the
Government kept awarding the company
vast public sector contracts.
And things were about to get even
worse - the financial black
hole of the heart of Carillion
would soon grow even bigger.
With its suppliers under pressure,
another vast group who relied
on Carillion were about to
suffer too - the 27,000 members
of the company's pension schemes.
While splashing out ever-rising
dividends, Carillion had run
up a pensions shortfall of hundreds
of millions of pounds.
The man in charge of Carillion's
pension funds tried to
convince the company to bring
that shortfall down,
as he explains in his first TV
interview since the collapse.
Of the company, and they weren't
prepared to pay that.
Were we worried for members?
Yes, we were.
Did we do our best to try and
recover it? Yes, we did.
And the difference in this case,
which was unique in my
experience, was that they were
in a non-negotiating mode.
What's it like negotiating
with Richard Adam?
Well, he's a tough guy,
and it's because he's a tough guy
that he was hired by the company.
And it's up to the chairman
of the pension trustees...
To negotiate their way out of it.
..the regulator and the law... Yeah.
...to push back. Yes.
But he wasn't in negotiating mode.
He was struggling to be in
negotiating mode. Yeah. Absolutely.
Yeah.
And he signs the cheque and I don't.
There's not much more we can
do to force him to sign up,
apart from embarrass him,
and they weren't embarrassed.
In April 2013, Robin Ellison
called a meeting with the
Pensions' Regulator,
the UK's official watchdog.
The Pensions' Regulator exists
to make sure that UK pension
schemes are properly run.
It has to the power to force
companies to pay more into
their pension funds.
But despite the pleas of
Robin Ellison on behalf
of 27,000 Carillion pension scheme
members, and the millions
draining out of the company each
year in dividends and bonuses,
the Pensions' Regulator made a few
empty threats and did nothing.
The Pensions' Regulator has
argued it was pressured by the
Government to be friendlier
to business.
So Carillion's management
got their way
and the pension shortfall
got bigger.
They didn't act quickly enough.
That's what they're there for.
They're there to protect us,
the consumers,
us the small shareholders,
us the pensioners,
and those receiving services
from Carillion.
And I really think the regulators
need to step up to the plate.
A major public watchdog had failed
to stand up to Carillion.
But while meetings continued
behind closed doors,
news of the company's lack of cash
was about to go public.
In March 2015, the investment bank,
UBS, had a look at Carillion,
and they produced a note for
their investors saying sell...
Sell their shares.
UBS pointed out Carillion's vast
pension shortfall and the
huge sums owed to thousands
of suppliers.
It wasn't feasible,
said UBS, for Carillion to flatter
its accounts any longer.
For years, hedge funds had privately
questioned Carillion's accounts,
but this was different. Now UBS,
a mainstream Swiss megabank,
was publicly raising concerns about
the true level of Carillion's debts.
It was a clear warning that
Carillion, which was getting over a
billion pounds a year of taxpayers'
money, was heading for trouble.
But as board minutes reveal,
the man in charge of the money at
the company didn't seem worried.
Richard Adam felt that statement
was "disappointing".
Adam said, "These are issues that
could apply to any organisation."
But UBS wasn't talking
about any organisation.
These issues were specific
to Carillion,
specific reasons it was
heading for trouble.
I'm not sure to what extent
Richard Adam was revealing the true
position to the board.
Richard Adam at the time was very
aloof, seen as very controlling.
He made the numbers look better,
without tackling the fundamental
issues in the company, which is
what a director should do, right?
He was being allowed to run all
of the financial aspects of the
business without proper
interrogation or questioning.
Richard Adam told MPs he didn't
produce numbers that misled
his colleagues and that he acted
with complete transparency.
He's also told us that throughout
his time at Carillion all of
its accounts were approved
by the board and audited.
Adam's work was meant to be overseen
by Carillion's board of directors.
Part-time non-executive
directors took home
between 28 and 60,000 a year.
In the company's own words they were
there to "challenge the business".
They were shameful in this.
It was their duty to go in and
to stand up and say this is
actually unacceptable,
and they didn't.
They were totally addicted to
the teat of those large cheques.
Chairman of the Board was Philip
Green, not the retail tycoon,
but the well-connected former
advisor to Downing Street on
corporate responsibility.
How much did you draw out
of the company, Mr Green?
My fee as a non-executive
was about 50,000,
and my fee as a chairman
was 220,000.
So in total,
since 2011 you've got - you had?
I estimated about 900,000
over seven years.
MPs have concluded that Philip Green
was one of those to blame
for Carillion's collapse.
He says he disagrees with many
of their conclusions,
but can't comment because of
ongoing investigations.
Industry heavyweight Paul Lester
has led some of Britain's biggest
construction companies.
The bottom line is the board
is responsible - full stop.
You know, the chairman,
the non-execs and the executives
are responsible for a company's
performance.
You can have hard luck stories, you
can have good luck stories, but at
the end of the day, it's about those
people that manage the business.
One to ten, ten's a good job,
how did the board do?
Who am I to say? I'm a chairman
sitting on various boards.
You're one of the most experienced
construction executives
in this country. I mean, the obvious
answer to that is one.
But if the board were asleep
at the wheel, others weren't.
From late 2015, around a quarter of
Carillion shares were used by hedge
funds in bets that the company's
value was going to collapse.
That was for more than any other
company on the London Stock
Exchange. The business model at
Carillion just wasn't working.
It wasn't generating cash.
You can't keep going back to banks,
can't keep going back to
shareholders, can't keep extending
credit from sub-contractors to
keep your business on the road.
But if the hedge funds and UBS
were warning Carillion was heading
for trouble, what was the reaction
from the company's biggest customer?
The UK Government had hundreds
of contracts run by Carillion,
from delivering school meals to
maintaining houses for soldiers.
It said it knew about the warnings
and discussed them
with Carillion's management.
The government operates a traffic
light system for major suppliers.
Companies with no known issues
are labelled green.
Those causing concerns are amber,
while significant concerns
mean red.
Government officials say Carillion
assured them the hedge funds
were wrong.
So throughout 2016, the company
stayed on amber.
Meanwhile, Carillion had just been
awarded another huge government
contract to build the Midland Met
super hospital near Birmingham.
Two years later,
it's still a building site.
Few have more insider experience
of how the government spends
public money than Sirjohn Bourn.
As Head of the National Audit Office
for two decades,
he scrutinised public expenditure,
but has never given a TV
interview until Carillion.
The Government should not,
in my view,
have given Carillion so much work.
And it didn't have to do it.
You could see that Carillion
was in trouble.
It was all rather like, I thought,
a Ponzi scheme, because it was
taking small contracts as a way of
keeping the bigger contracts going.
How would you describe the
Government scrutiny of Carillion?
I was surprised that the Government
had gone on giving it contracts.
Here's an enormous strategic
suppfien
We would have 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.
How would you sum up the
Government's scrutiny of Carillion?
Inadequate.
Yet, even the huge public contracts
it won couldn't shore up
Carillion's debt-soaked foundations.
And in 2016, directors drained yet
more cash out of the company
in another record shareholder
dividend.
The trick they were playing
was borrowing money to keep
paying dividend payments on
the basis that if we do that,
nobody will look much
at the account.
A company with hundreds
of government contracts,
with billions of pounds
of taxpayers'
money is issuing accounts that you
think were deliberately opaque.
I think it's more than
deliberately opaque.
They were there to mislead.
In 2016, Richard Howson and
Richard Adam between them took home
bonuses of nearly 400,000.
Then in December that year,
Richard Adam retired from Carillion.
Just three months after he left,
he sold every single Carillion
share he held, washing his hands
of any stake in the company's
future and netting himself
over half a million pounds.
Richard Adam gave his own
explanation for selling those
shares to MPs investigating
Carillion's collapse.
I don't have a share portfolio.
I don't own shares of any
substance in any company.
I don't take that sort of risk.
At least one committee member
wasn't convinced.
To me, the evidence that he gave
stretched credulity.
Do you think he was being
deliberately vague?
I think he was evasive.
That's quite a strong word. Yes.
How would you sum up the evidence
that you heard from Richard Adam?
Suspicious.
Richard Adam told us he rejects
the accusations made about him in
this programme. He says he
discharged his duties in good faith
and to the best of his abilities.
Richard Adam told MPs investigating
Carillion's collapse that their
searing conclusions about his role,
independently echoed in this film by
insiders and other industry experts,
were unjustified and unwarranted.
The timing of Richard Adam's
retirement worked out well.
A year after he left Carillion,
the half a million pounds of
shares he'd sold were worth
not a single penny.
Spring 2017.
Carillion had constructed a
fortress of phoney profits
and mounting debts.
But how long before
it all came tumbling down?
So, this is Carillion's 2016
annual report.
Pre-tax profits were
apparently 178 million,
and based on that, Carillion paid
out a blockbuster 79 million
dividend, a record even for this
big spending company.
But was this a genuine annual
report, or was it a work of fiction?
The balance sheets projected a sense
of wellbeing, but actually,
when you dug down, there
were certainly issues.
It looked to me as if debt
was actually understated.
For someone who bothered to look
at them and enquire, they were a
very poor set of accounts.
I think the company was essentially
insolvent as far back as 2016,
and possibly even before then.
And the question is how did the
accounting standards allow
them to get away with this and what
were the auditors thinking of?
KPMG were Carillion's auditors
throughout the 19 years of
the company's existence.
Each year, they'd sign off on
figures provided by Carillion,
certifying that the accounts
showed a true and fair picture.
In return,
KPMG pocketed 29 million in fees,
and never once did they warn
of the catastrophe to come.
KPMG maintain they acted
appropriately and responsibly
at Carillion, but if that's so,
what's the point of auditors?
Auditors cannot just tick boxes
and say this meets the rules,
that's fine. They have to challenge.
They have to question.
They don't do that at the moment.
The 2016 annual report had
one more telling detail.
Tucked away on page 78 was a change
to the rules governing bonuses.
According to these new company
rules, the only reasons for senior
executives to hand back
their bonuses would be a
restatement of accounts, or if
they were prosecuted for gross
misconduct, both highly unlikely.
Nowhere do these new rules say
that bonuses would be handed back
if the company collapsed.
Carillion claimed the change made
it easier to claw back bonuses.
Directors should be accountable
for their failings and they
should not be rewarded for them.
But to change it then, just before
the implosion, months, weeks before.
It was really disgusting.
And if they have been shown to
made misleading decisions, or have
misrepresented the position
of the company...
A record dividend just before
implosion. ..then I think...
How can that not be misleading?
...the book should be thrown at them,
but that is not a decision for me.
That is a decision that has to be
taken by those that regulate.
Should we see a legal case here,
be it some kind of class action
by shareholders?
I think it is something that the
insolvency service will be
looking at. It is something that the
regulators will be looking at.
But I... Possible criminal
prosecution? Possible?
There are grounds for investigation
that on the evidence
that I have seen.
The regulator is looking
at any criminal acts,
so the Carillion board, however
they suppress the horrible truth,
ought not to be resting easily
in their beds.
So far, no senior Carillion manager
had dared to question the regime,
but that was about to change.
Emma Mercer had been
at the coalface.
She'd seen much more closely how
Carillion's finances were going.
She was promoted and within
six weeks, she was pointing out
that the accounts didn't make
a great deal of sense.
What she was saying is,
you know what,
we didn't make that money,
you know, the cash isn't there.
That's the true measure of whether
we made the money or not,
and you're able to cover up that
cash picture quite considerably,
and that's what you've been doing.
So I think we'd better go and tell
the shareholders, you know what,
that 845 million that we've made
over the last five years?
Well, in truth, we haven't.
She was the only one who had any
sense about what her duty was and
what her sense of public duty was,
combined with that to the company.
As Emma Mercer spoke out about
financial recklessness at the
company, comfortably retired
ex-finance director, Richard Adam,
received another quarter of a
million pounds of Carillion shares.
He sold them on the spot.
Carillion's board of directors
were now told Mercer had
discovered a vast hole in the
company's accounts.
According to minutes of that
meeting, none of them had any idea
of the scale of the financial crisis
facing the company.
If they had oversight, why did they
not do something about it sooner?
But if they had not known what
was going on, then they were not
doing their jobs.
It's one or the other.
It is either they are complicit
in this, or they are incompetent.
Yet, despite Mercer's warnings, an
auditor from KPMG said there was no
need to make any public restatements
of Carillion's accounts.
Chairman Philip Green and the rest
of the board agreed.
But the thread Emma Mercer had
pulled started to unravel the
whole Carillion web.
Soon, it was discovered that
the company's fantasy income
was 845 million, and that hole
was impossible to hide.
We're on our way to an HR
leadership conference,
so the radio that morning
was full of this news.
RADIO: Carillion's Chief
Executive, Richard Howson,
is resigning without a
permanent replacement.
The company has also issued
a profits warning...
After years of secrets, the shocking
state of Carillion's finances
was finally revealed to the public.
On the 10th July, we get a profit
warning, but not an ordinary profit
warning, a profit warning like the
City has not seen for generations.
845 million was not there.
A profit warning of 845 million
is pretty much as big as it gets.
A City bloodbath wiped 70% off
Carillion's shares in just two days.
Government officials say they
were taken by surprise and that
Carillion misled them.
Others weren't so shocked.
No surprise.
I don't think anybody was surprised
in the industry because of
all the questions that were being
asked over the last few years
by the hedge funds in particular,
but it came down at the end to cash.
Chief Executive Richard Howson
had come to the end of the road.
But when Parliament issued a
scathing report into Carillion,
reflecting what our insiders and
experts have also said, Howson
told MPs they'd failed properly to
analyse the evidence and hadn't
understood the complexity of the
markets in which Carillion works.
Howson admits Carillion's debts were
too high, but says that after he
left, more should have been done to
collect money the company was owed.
Carillion was now in free-fall,
but suddenly a savour appeared with
a sack full of taxpayers' cash.
NEWS REPORT: The government
announced it was awarding a major
contract to a construction company
in financial trouble.
Carillion issued a profit warning
and lost 70% of its value,
prompting concerns its involvement
will cause delays.
Barely a week after the catastrophic
profit warning, the Government
announced Carillion as one of the
contractors for the HS2 train
line, the first of almost 2 billion
of Government work to be
announced after the profit warning.
The Government says it made sure
Carillion worked with
partners, who would finish the
job if it went bust.
Yet, Britain's longest serving
Auditor General was appalled.
You couldn't have had a better
warning to be careful.
I asked some colleagues why this
was, and I had this answer.
Well, a lot of the contracts
you've got three collaborators,
so if one goes down,
there's still two left.
But that doesn't get away from
the fact that it wasn't a good
idea to give it anyway to a company
with such a dicey position,
in terms of its own money.
With almost 2 billion of public
money heading its way,
few in autumn 2017 thought Carillion
would go into total collapse.
But the profit warning
was just the beginning.
Soon, the firm would be forced
to confess its cash black hole
was even bigger, and a company
with hundreds of vital Government
contracts would finally
head over the cliff.
Late 2017.
As Carillion reeled from a
colossal profit warning,
a second shock announcement revealed
the hole in the company's
accounts was now over
a billion pounds.
The Government was watching
Carillion closely,
but what action did ministers take?
Carillion had finally been moved up
to the red risk category, but
now Government officials recommended
escalating it to the even higher
black category, making it harder for
Carillion to get Government work.
The company told politicians
that would send it bust.
The black category is for companies
about to go over the brink.
It's a way to stop throwing good
public money after bad and
begin damage limitation.
But despite profit warnings, and now
the advice of the Government's
own officials, ministers still
failed to escalate Carillion
to the highest category of risk.
One of the things that you really
need to look at, a simple test,
is how much cash has it got and
is it paying its suppliers?
Well, if you looked at Carillion,
an enormous company,
I think it had 29 million in cash
when it went down. Peanuts. Peanuts.
And it was not paying its suppliers,
so you could say from this
very simple test that there
was something wrong with it.
Up and down the country,
Carillion's 19,000 employees
and 30,000 subcontractors waited
for news of their money and jobs.
We thought well,
they're too big to fail.
We were talking to our contacts
in Carillion and they were
saying the word from the business
was everything's fine.
But the truth was very different.
Despite the vast injection
of public money,
Carillion was still bleeding cash.
Things came to a head in January,
when Carillion essentially
just ran out of money.
The cash just wasn't there.
So they tried to borrow more money.
They tried first to borrow it from
the banks, and the banks said no.
It was forced to go to the
Government and say we need
millions of pounds more money.
The very fact that the directors
thought that just a short
term loan from the Government would
tide them over just shows how
divorced from reality
they had become.
And that is the real problem, the
mind-set of Carillion's management.
But it seems Carillion's coffers
weren't completely dry.
On the brink of collapse the company
actually paid out 6.4 million,
not to its thousands
of subcontractors,
but to its well-connected lawyers
and accountants.
They got their bills paid.
Meanwhile, Carillion was begging
for a quarter of a billion
Government rescue package.
The day after the lawyers
and accountants got paid,
Chairman Philip Green sent a top
secret letter
to the Cabinet Office.
The letter warns that if the
Government provides no new
funding, Carillion would have no
ability to manage the impact
on our customers or suppliers or,
in the extreme, the physical
safety of Carillion employees or the
members of the public they serve.
Philip Green was telling, or perhaps
threatening the Government,
that if Carillion wasn't funded,
the safety of the British public
would be under threat.
It was his final roll of the dice.
It was very nerve-racking
over that weekend.
And then on the Monday someone sent
me a text at half past seven.
The Government said no, they weren't
going to cough up any more money.
They'd gone under.
NEWS REPORT: It's 7 o'clock on
Monday the 15th January.
The troubled construction
firm, Carillion,
has been placed into compulsory
liquidation with immediate effect.
I was absolutely amazed.
Nobody realised quite how
bad it was.
We were expecting the company
to be split up,
but never at any point did we think
it would be put into liquidation.
Yeah, that was a big shock.
It took the government to say no
for the fantasy to finally
come to an end.
So we found out they'd gone bust
at 7.30 in the morning,
and we, I, started to let good
people go at about 10 o'clock.
Some of them I'd known
for years and years.
I mean, they were not just
employees, they were friends.
In a small business, you
know everybody, you know,
people aren't a number here.
We know their names,
where they live, their kids' names.
You feel cheated, particularly
in the way that clearly the
leadership team within Carillion
were operating.
In February 2018, Carillion's former
directors hung their heads in shame.
Could I just say how saddened
that I am by all of the events?
I am deeply sorry.
I, too, would like to say how deeply
saddened and how sorry I am.
But not a single one of them has
handed back a penny of the
millions of pounds of pay and
bonuses that between them
they received from the company.
Mr Howson, will you give your
bonuses back? No.
Emma Mercer had told the
truth about Carillion,
but lost her job as the
company went down.
She is a shining example, but even
she couldn't pull this crew back
from what they were intent on doing,
or didn't care what they were doing.
I think good on her
that she did that.
A pity she wasn't in that position
many years before.
But the recklessness inside
Carillion was made possible
by a system that failed,
from the Pensions' Regulator...
There was no real pressure applied
to Carillion to make sure that
a burgeoning debt in its pensions
fund was actually dealt with.
...to the auditors meant to
scrutinise the accounts.
The world relies on these
accountants to make sure that
accounts are presented correctly,
and if that fails, there's a
question mark about whether or not
capitalism can be sustained in the
way it currently operates.
While politicians sent billions
more in public funds to Carillion,
despite the clear signs the
company was in trouble...
It was a disappointment and a
disappointment that didn't
have to happen.
...the Official Receiver says that
when Carillion collapsed, its
liabilities were up to 7 billion,
though the final
costs won't be known for years.
The firm's record pension deficit
will be bailed out by other
UK workplace pension schemes.
And thousands of smaller businesses
have been left with
Carillion's debts.
We're still here six
months down the line,
but good people lost jobs,
lost their homes.
They've known for a number of years
that it was built on sand and
they hid things. It's deceitful.
They went bust owing us around
half a million pounds,
and I don't think we're really
going to see anything of it back.
Carillion was founded on
bricks and mortar,
but this is really a story
about two groups of people.
On the one side, reckless directors,
toothless regulators and politicians
who look the other way.
On the other, staff who lost jobs,
short-changed taxpayers and
subcontractors who will
never be paid.
The tragedy of Carillion
is that those firms,
those employees were working
hard and working for Britain.
Their energy and expertise could
still deliver some of the
best public services in the world.
Instead of allowing them to be
ripped off while corporate
recklessness is ignored, we need
a system that scrutinises
exactly where billions of pounds
of public money's going,
otherwise there'll only be
more Carillions,
and next time,
the losses could be even greater.