Was Carillion like a ponzi scheme? (Part 2)

I’ve decided to create a 3-part series on Carillion and the hidden goings-on in the accounting world. This is part 2, where I look at some of the questionable accounting. You can read Part 1, on the insolvency process here. You can read Part 3, on the ongoing investigations and aftermath here.

I loathe hyperbole. As I explained in the first part of this series on insolvency, a lot of the time that hyperbole is nonsense. So when I started hearing people describe Carillion as like a Ponzi scheme, I was thinking: “here we go again“.

A big difference this time is that one of those saying it is former Auditor General Sir John Bourn. That made me stop and think. When somebody of that calibre says it, you should probably take it seriously.

Having reflected on those comments for a week or so, I think they are right. Carillion had many characteristics of a Ponzi scheme.

What is a Ponzi scheme?

Ponzi schemes are named after Charles Ponzi, who used the technique in the 1920s. A Ponzi scheme is a fraud where a business seeks funds from new investors and pays those funds as profits to earlier investors. The fraudster tricks the old investors into believing that the profits are from sales or trading returns, not disclosing their true origin. Investors are misled as to the true nature of the alleged ‘profits’.

Ponzi schemes can keep running as long as: investors do not demand repayment of their funds, continue to believe that their non-existent assets will continue to generate ‘profits’ and there are new investors willing to contribute new funds.

Revenue accounting

Carillion was primarily a construction and services contractor. As a forensic accountant, a big red flashing light appears. This is because the most notorious financial frauds and scandals are perpetrated by recognising non-existent revenues. Construction and services contracts are the most tricky when it comes to determining when and how to recognise revenue. (So much so, the international accounting standards body is once again updating the standards on revenue recognition).

Profiling

The big problem is this: the contractor pays lots of cash out upfront and gets most of the cash backloaded. It’s easiest to see this graphically:

When the orange line is above the blue line, the contract is making a cash loss. You can see that for most of the project, it is making a cash loss. It’s only at the end that a cash profit is made. This is quite common, where the contractor is paid in increments when it reaches a milestone. [update: for those after a bit more detail have a look at the end of the post]

Recognising revenue

The accounting standard relating to construction contracts is IAS 11 (for general revenues it is IAS 18). Both will be replaced by a new standard, IFRS 15 this year. Basically, it says, if the outcome of the contract can be estimated reliably, revenue and costs should be recognised in proportion to the stage of completion.

If the outcome cannot be estimated reliably, no profit should be recognised. Instead, contract revenue should be recognised only to the extent that contract costs incurred are expected to be recoverable and contract costs should be expensed as incurred.

However, the stage of completion of a contract can be determined in a variety of ways. Such as, including the proportion by costs incurred compared to estimated total contract costs or completion of a physical proportion of the contract work.

Importantly, an expected loss on a construction contract should be recognised as an expense as soon as such loss is probable.

As you can see from the standard, quite a bit of judgement is involved. In the judgement lies the grey areas. In the grey areas lies dodgy accounting.

Carillion’s story

Carillion was a relatively young company. It started in 1999, a spin-off of the old Tarmac Group. From the outset, Carillion’s approach was to take on debt and buy up competitors. Over time, it made increasingly big bets buying out a number of competitors including Mowlem, McAlpine, part of John Liang and even tried and failed to merge with Balfour Beatty.

Despite the rapid acquisitions, following the financial crisis the company struggled to grow profits. Struggling to grow revenues from acquisitions alone, it resorted to taking on more projects to grow profits.

But as we saw above, those projects start off with cash outflows. Generally speaking, the bigger the project (think the big PPP stuff with the government) the bigger the outflow. So Carillion turned it’s hand to getting short projects in to get the cash to fund the big projects. The trouble was, those short projects had wafer-thin margins – making very little profit. So Carillion needed more and more of them.

In other words, Carillion was bringing in projects so it could service the old ones. It became a cycle and somewhat reminiscent of a Ponzi scheme.

How things turned bad

These projects are complicated and often go wrong. Especially when you have little profit margin to play with. So many firms have big cash-buffers to help if this happens. They also retain deep pools of knowledge and expertise that it can use to ride out rough patches and know when to cut their losses.

Unfortunately for Carillion, it had huge debts from its acquisition spree. More concerning, Carillion just wasn’t very good at building things.

At this point, with very little cash in the bank and projects going wrong, a company should cut its losses to stop the bleeding before its too late. Carillion, however, doubled down.

The “Early Repayment Facility”

Its first step was to find cash in more creative ways. Despite being a signatory to the Prompt Payment Code, it used ethically questionable practices to delay payment to suppliers (querying invoices, delaying issuing purchase orders or just flat out not paying for supplies).

It went one further and arguably abused a government scheme called the Supply Chain Finance Scheme.

The scheme, created in 2012, was designed to help SMEs that got burnt during the financial crisis by banks refusing to offer credit. SMEs could use their invoices to get the money from their bank rather than wait for the company to pay them. In turn, the bank would collect the money from the company when it was eventually paid.

Carillion flipped this on its head. It said to its suppliers, if you want your money early then you can use the scheme. They renamed it the “Early Payment Facility”.

However, a few months later it cynically pushed out its credit terms (sometimes up to 120 days). In other words, it wasn’t an early repayment at all. Worse still, many suppliers would have to pay a fee to access that early payment, leaving them with a difficult choice of losing money but getting cash or waiting for longer and longer to get hands on the money it was due.

In effect, Carillion was borrowing from its suppliers to plug its cash and funding gap. Carillion was quite open about this, boasting that the scheme: “Gives Carillion greater flexibility in terms of managing its own working capital.” But in the accounts, there was no mention of the Early Repayment Facility.

A gap in the accounting standards

That’s because, in my opinion, it falls in between a gap in the accounting standards.

Carillion was in effect borrowing cash from its banks secured on supplier invoices. This is, by most people’s reckoning, a debt. But the accounting standards are vague on these transactions (sometimes called Reverse-Factoring). It essentially boils down to a judgement call about whether the link to the original payable has been broken. If it has, it’s a debt liability. If not, then it stays as a payable. It’s a judgement call that depends on the exact wording of the legal agreements.

This is important because if you keep it as a payable your debt levels look much lower. Carillion decided the link to the payables was still there – this wasn’t a debt. This should have been a high-risk area for the auditors because of the large amount of subjectivity.

One of my major projects was where there were bad debts on a factoring facility and the argument was that the accounting by the company was wrong. The answer was, according to the accounting standards: “it depends on the legal documents”.

As far as I can tell from the accounts, KPMG (the auditors) didn’t consider this a high-risk despite the very large sums of money at play (roughly £500m). If Carillion had recognised these amounts as debts, then it may have broken it’s borrowing covenants and the banks could have recalled their loans putting Carillion out of business.

Aggressive Accounting

But the major problem was that Carillion resorted to aggressively recognising revenue on contracts.

If you recall from above, you could either recognise revenue on a percentage basis (only if you could reliably estimate it) or you couldn’t recognise any profit, only the recoverable costs.

As I mentioned before, Carillion was doing a poor job at delivering projects, usually over budget and behind schedule. Where there is doubt that you can deliver the project to contract, you should stop booking profit and only book the money you’ve actually brought in. If it’s probable you might incur some losses, those should be recognised immediately as well.

But Carillion continued to book revenue as if everything was fine and dandy. Trouble is, once you go down this route there is no going back. It’s like Cortez scuttling his ships. The more you book aggressive revenues the bigger the gap becomes between your actual revenue and the forecasts. This is exactly what happened at Carillion when a new finance director came in and said: “hold on this isn’t right!”. In 2017, Carillion wrote off around £800m of revenue (the difference between the stage of completion accounting and the actual money it could bring in).

Insolvency

From my review of the 2015 and 2016 accounts, I would consider that Carillion was potentially insolvent in 2016 (and possibly 2015 as well). This view is shared by, among others, Frances Coppola, a finance and economics journalist. During 2015 and 2016, hedge fund managers smelt something was up and it became the most shorted stock on the London Stock Exchange.

This is because Carillion had a wafer-thin amount of cash, had mountains of debt (excluding even, the payables possibly that were mis-classified), and because its net assets were almost entirely propped up by Goodwill (an intangible asset that is not immediately realisable, unlike cash or hard assets like property, though usually at a discount).

Goodwill hunting

Goodwill is the extra money paid by the acquirer above the asset value of the company being taken over. It can be thought of as representing things such as brands, patents and reputation. In Carillion’s case, it represented the forecast profits from its the subsidiaries, joint ventures and “special purpose companies” that it used to run projects. As those profits evaporated so should have the goodwill.

Put bluntly, the goodwill accounting in Carillion’s accounts made no sense. Carillion was due to pay ‘contingent consideration’, extra money, to the sellers of some of the businesses it acquired. However, because they were missing profit targets it was slashing these amounts. At the same time, it was saying that goodwill would only reduce in value if the discount rate (the time value of money) went up to 20% – i.e. money in 5 years time is worth only 40% of money today. But this would mean almost all of the extra profits from the acquisition had to come within 5 years. This was a big sign that these profits (like Carillion’s own) were overestimated.

Write-offs

In 2017, Carillion tried to undo the damage with enormous write-offs. Including nearly £800m in overstated revenues. But it was too late, the company was already short on cash and had nothing left in the bank. Likewise, because almost all its assets were goodwill, it had nothing to sell either. Carillion quickly went from people thinking it was insolvent to being insolvent (more on that in part 3).

A lesson for all businesses

There is a lesson here for all businesses. It was one of the first I was ever taught as an accountant:

Most businesses go bust, not because they fail, but because they do too much business.

It’s called overtrading (that link made me laugh, Carillion followed the bullet points in that link point-by-point). What happens is that you sell too much stuff, and you run out of cash to complete those sales.

Carillion was the quintessential overtrader following bad projects with more bad projects. Rather than stopping before the damage was permanent, it followed a Ponzi-like business practice that made salvage impossible.

It’s quite inexplicable that experienced directors could act with such incompetence. However, there are questions about whether there was something more insidious going on. I’ll be looking into that in the next and final part.

 

All the best,

Young FI Guy

(p.s. a personal thank you to Frances Coppola, who was an inspiration for me writing this post).

 

This is part 2 of a Carillion three-parter. You can read Part 1, on the insolvency process here.  You can read Part 3, on the ongoing investigations and aftermath here.

[update: some industry bods kindly shared this post on twitter and there were some interesting comments.

This post was designed to be accessible to those with no knowledge of accounting or contracting. So I’ve kept it as simple as possible. That said, for those after a little more detail it’s worth talking a bit more about the contracting subcontracting relationship (something helpfully mentioned by commenters on twitter). Here it goes.

Generally speaking the contracting industry can be broken down into a hierarchy of three (or more) ‘Tiers’. At the top is Tier 1, the contractor engaged by the ultimate customer. For major projects, this will be a national contracting firm like Carillion. Tier 2 is a subcontractor engaged by the contractor to deliver major parts of the work. These are often local contracting firms, specialists and consultants. Tier 3 are the subcontractors engaged by Tier 2 subbys. These will do specific jobs or services in the project ranging from electrical installations through to cleaning toilets.

Even though each tier will have contracts with one another, a lot of the industry still works on trust. That said, there are also specialist ‘supply chain management’ firms that can also act as the ‘grease between the wheels’.

Generally speaking, as you flow down the chain, the subcontractor will rely more on cash to fund works. The Tier 3 contractors will pay for material and labour in cash or short (monthly) credit terms. In turn, the Tier 2 contractors will pay Tier 3 contractors on longer credit terms. And so on, up the chain.

In effect, this means that subcontractors are net lenders of finance to build projects and contractors net borrowers. The contractors ‘borrow’ by having services rendered for them before getting paid, only paying out when work reaches the relevant milestone. In other words, they borrow from their suppliers.

So what happened with Carillion? Well as I noted in the main piece, Carillion aggressively tendered for projects. Taking on projects with very late payment or thin margins. Unfortunately, some major projects became severely delayed or not built up to standard.

You might think that’s the subcontractors’ fault. After all, they are the ones doing the job, right? To some extent, there are bad subbys out there. But it’s important to understand that it’s not just about doing the right job. You have to do the right job at the right time. It is the responsibility of the contractor, like Carillion, to ensure everything is working in order.

As we saw in the main piece, as things started to go pair-shaped, and the cash stopped flowing in, Carillion would delay and delay paying subcontractors. In effect, they had to borrow more and more from suppliers to keep the lights on.

There’s only so far you can push things though. From speaking to people and reading around, Carillion became notorious in the industry (though by no means the only one) for sharp business practices. Over time, a great deal of goodwill was lost between Carillion and its subcontractors.

Eventually, Carillion has tapped out their suppliers as far as they could and only cold hard cash could keep the business afloat. As we saw in the main article, that’s when the business came crashing down.

 

 

 

 

Interesting links:

Frances Coppola on the Early Repayment Facility: https://www.forbes.com/sites/francescoppola/2018/01/30/how-carillion-used-a-u-k-government-scheme-to-rip-off-its-suppliers/#7ab7a7c252dc

FRC letter to the Work and Pensions committee on Reverse Factoring: https://www.parliament.uk/documents/commons-committees/work-and-pensions/Carillion%20report/Letter-from-FRC-to-Chairs-21-March-2018.pdf

Carillion 2016 Accounts: http://www.annualreports.co.uk/Click/12208

  • The references relating to my point on Goodwill are Note 11 (Intangible Assets), p110 and Note 29 (Acquisitions and disposals), p129.

22 thoughts on “Was Carillion like a ponzi scheme? (Part 2)

  1. Ponzi might not be the right term but the running of a business that under cuts to win projects that are unprofitable and doesn’t understand the costs of its own business is always going to go bust in the long run.
    This describes carillion but who is the next carillion?

    1. I think that’s right GFF. I didn’t go outright and say Carillion was a Ponzi scheme. Firstly, because it wasn’t and secondly because it’s not clear at this stage whether a fraud has occurred or not (more on that soon). But some of the characteristics were there, good money following bad, phantom/overstated profits, and a reliance on new projects to keep the old ones going.

      A big question will be, was this extreme incompetence or something more insidious?

      1. Well – I have had an interest in this company and a close friend worked there – the stories he would tell.
        I like intfrastruture investments but this one was a calamity.
        It was also a good read – beats emails in the afternoon

  2. I work as an accountant for a property developer and I have to say that once Carillion had started down this road it’s all very well for the directors to blind themselves to (or potentially intentionally ignore) the consequences of what they were doing in the name of trying to stay in business and it’s even understandable for their finance staff to follow along if they felt like they were getting direct orders from their superiors and their jobs were therefore on the line (not acceptable by any stretch, but understandable).

    However, KPMG as auditors are the ones I feel should take major responsibility for the incredibly dodgy accounting you describe. It’s literally their job to pick up on issues like this and the fact they were Carillion’s auditors for most of the life of the business (presumably taking millions of pounds in fees) says to me that they should be facing a huge court case or fines for their complete abject failure to actually audit the accounts properly…

    1. Hi Edd, both great points and things I’ll be writing about in the third part.

      On your first point, I think something that’s misunderstood by the public is that, within any company, there is a series of accountants. From the CFO at the top through the segment FDs down to the supervising accountant and site accountants. That system works well with good processes and systems in place. Unfortunately, as I think was the case with Carillion, the processes unravelled just in the way you describe.

      I’ll also talk about what might happen to KPMG in the last part. They’ll be answering to the FRC who are conducting an investigation. Ultimately, they aren’t responsible for the accounts themselves, management are, but they shouldn’t sign off accounts that aren’t true and fair (more on that too). There are, on the face of it, a few very troubling things in the accounts that jumped out to me.

      1. The eternal problem in finance is that your processes are only ever as strong as the people you have executing them… If the people who are the checks and balances in the processes (i.e. the senior accountants, FCs and FDs that are signing things off) are pushed to ignore things for whatever reason, there is absolutely no point having the process, but the fact that the process is in place at all is usually enough to reassure a lazy auditor or a casual check from the directors that doesn’t follow through and check whether it’s actually being followed or not.

        There is just so much trust required in finance and so much depends on the integrity and ethical attitude of the staff that I feel that the only check that exists to stop the situation where that integrity fails is the auditors looking in from their notionally unbiased external position. This is why I feel a lot of blame really needs to land on KPMG as the internal culture of sweeping things under the table is something that develops over a long time and therefore the finance frogs don’t notice the proverbial pot getting hotter, whereas an auditor that pokes their head in either once or twice a year should really notice the changes…

  3. Thanks for the explanation of how they got away with massaging their figures for so long.

    Carillion part 2 shows how dire the oversight of these companies is. That reporting practice is ridiculous, probably some similarities with why Tesco were able to book fictional profits for so long before they got found out.

    In response to Edd’s comment above, I agree entirely, KPMG with all their apparent expertise were yet again found to be asleep at the wheel. No doubt it was in their best interests to keep the wagon rolling, even if it was downhill towards a cliff edge.

    Funnily (to me anyway) I start a contract next month with a firm who have taken over a Carillion contract that they couldn’t service. I’ll be contracted to Amey, another outsourcing firm, let’s hope they haven’t employed anyone from the Carillion finance team or we might be picking at the carcass of another failed company in the near future.

    I’ll bet there’s a lot of midnight oil being burned in the finance departments of Amey, G4S, Serco and the like. Who’s next??

    1. Funny you mention Tesco. That was a rather odd case. For starters, PWC specifically identified revenue recognition as the the biggest risk in the accounts. So it knew it was an issue. PWC would have put a lot of time and effort into investigating around that. The FRC investigation closed with no action against PWC. An educated guess is that PWC were doing the right things, asking the right questions, just they were being given ‘well dodge’ information. From what I’ve read, certain members of the Tesco management acted nefariously – thus the SFO investigation and charges. Which would tie in. Tesco does have a similarity with Carillion in that the industry had known for a long time about Tesco’s sharp practices and had been complaining about it for some time.

      What I’d say Tony is that the vast majority of the Carillion staff would have been good eggs. I know it’s cliche, but one rotten apple can spoil the bunch. Just because management were ‘bad dudes’ that doesn’t mean the general foreman and the site accountants were also bad. Many would have been just trying to do their best in a terrible situation. All I hope is that the important works and services that were going on keep going or get started again as soon as possible. From the word of the OR, that appears to be generally the case.

      1. Indeed. History is littered with these companies growing so large and complex that not a single person knows where to start when attempting to decipher what went wrong. Therein lies the problem, the snowball effect of complexity is not a by-product of expansion, it is designed that way for a reason…..Protect the system and the participants!

        98% of the people in these organisations turn up to work to do a good job. Some people can’t see the wood for the trees and unfortunately it’s these conscientious workers who end up out of a job when they have done no wrong. I walked out of Lloyds Bank last year because it was literally getting me down, everything they stated they represented was the complete opposite of their actions. The entire bank is littered with what I can only describe as robots.

        I worked as an external contractor in a department that repossessed houses from delinquent mortgage payers. The staff (Lloyds permanent staff and a number of contractors) stated they were liberal, social justice types who espoused equality, raising people out of poverty etc etc. The working day involved the staff creating work for themselves and arguing about politics and not actually helping people get a grip on their finances and working towards getting back on track with their mortgages.

        There was a great deal of the working day spent on conference calls about how great the bank are at supporting (insert bleeding heart cause here) and what charity days are coming up next. Then they would tell about 20% of the departments that due to ‘restructuring’ redundancies would be happening so people needed to re-interview for the reduced number of positions available. By your side my arse! I’m glad I got out of there when I did. As a shareholder of Lloyds I was staggered at the amount spent on contractors (myself included), it really isn’t necessary for so many staff to be involved in most of what gets done on a daily basis. It seems to exist for the benefit of the back office and managerial staff and not the customers!

        There’s an old saying, ‘Put a good person in a bad system and the bad system wins every time’. I’m sure that applies to most large corporations, especially Carillion.

        Looking forward to part 3.

  4. My father, who knew a thing or two, used to insist that executives in large firms were often hopelessly bad businessmen. He also said that experience taught that incompetent businessmen would often be dishonest, being incapable of making a living honestly. He would sometimes finish by saying that far too few of such people went to jail.

    Mind you, it’s my view that far too few of all sorts of people go to jail. Lawyers and policemen certainly. Accountants? Dunno.

  5. Milestone payments are generally unusual in construction contracts, and more commonly the Contractor is paid as a proportion of the value of work executed – known as interim payments. Both the Contractor and the Client will employ specialist Quantity Surveyors (QS) to establish what this value is – generally in a type of advocacy – the Contactor’s QS asking for more than the Client’s QS is willing to agree to – and the 2 of them reaching an agreement. It generally works out reasonably well.

    However, a problem arises when the Contractor claims that some of the work he has carried out was not included in the original bid, and the Client’s QS does not agree. The Contractor is now faced with a dilemma. He may feel that his claim for extra work is bona fide and that the money he is claiming is legitimate, even though the Client, acting on the advice of his own QS, has not paid it.

    Contractor’s are loathe to litigate about such matters, not least because of reputation, good working relations and so on. And so these matters drag on.

    And there is likely to be many such items on a large contract. I was gainfully employed for over 30 years as a consultant advising on such matters.

    So does the Contractor recognize the disputed sums as revenue or not? I’d like to bet that Carillion most certainly did.

    1. Hi Borderer, thank you for sharing – very interesting to hear your perspective.

      I must say, I’ve never come across a non-milestone contract. Then again, I generally only worked on the very largest projects and these were almost always both physical and IT mixed contracts (rather than ‘pure’ construction jobs). And I would, of course, only get involved when things went gravely wrong!

      The big problem, as you note, is when change orders are raised. That was usually the focus of us forensic accountants – what costs are associated with the original contract? what costs with the ‘add-ons’? As you are probably all too familiar with, governments are quite fond of changing their mind as the wind blows. My work left me very cynical about ‘major governmental projects’.

      As you say, most of the time these matters can (and should!) avoid being litigated over. That said, I’ve worked on 3 of the largest IT/contractor disputes in UK history, that each worked their way up to arbitration before last-minute settlements (usually, because the time was right ‘politically’). There are a number of politicians in this country that, on the basis of the work I’ve seen, are breathtakingly incompetent. I wouldn’t trust them to make tea, let alone ‘solve’ Brexit.

      I suspect you are right that Carillion was recognising at least some of those disputed sums. The most prominent one was a major Qatari development that was going horrifically wrong. In the select-committee, the KPMG auditor got himself in a right muddle on that contract. That was quite worrying because the sums at stake were quite large – some £200-300m. Given the high-risk nature of revenue recognition, the auditors should have been all over that. It appears, from an outsiders point of view, that they were not.

      I’d really be interested in hearing some more of your thoughts Borderer, if you’d be willing to share!

  6. A variation (sometimes referred to as a variation instruction, variation order (VO) or change order, or compensation event), is an alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works.

    Almost all construction projects vary from the original design, scope and definition. Whether small or large, construction projects will inevitably depart from the original tender design, specifications and drawings prepared by the design team.

    As no power to order a variation to the contract can be implied, so there must be express terms in contracts which give the power to instruct variations. In the absence of such express terms the contractor may reject instructions for variations without any legal consequences.

    Depending on the type of contract in place, various mechanisms exist for the valuing of these variations. But what is common is that various rules are applicable to the valuation. Whether these rules have been properly applied, and so the valuation made is fair and equitable is the first major source of dispute on construction projects.

    The second, and perhaps the more contentious, is where the Contractor claims that he has incurred additional costs, losses or expenses because of the failure of the Architect, Engineer, Supervising officer or Project Manager, acting for the Client, to provide information in a timely manner.

    And finally, where the Contractor claims that circumstances have changed and that change was not capable of being envisaged at the time of signing the contract and the risk for that change lies with the Client.

    Phew – sorry for the brief essay on Construction Law.

    But as you can see, the scope for dispute is large, and for each the Contractor must make a decision as to whether to recognize his claim as bona fide or not. Project Management, under enormous pressure from ‘head office’ to justify losses on a project will inevitably state their best case scenario, even if an impartial qualified observer may think otherwise. It is the job of senior management to identify this and make provision accordingly, which appears did not happen in the case of Carillion.

  7. Just as a post script, I have been a Chartered QS for over 40 years and establishing whether a claim is bona fide or not, both in terms of contractual validity AND in terms of quantum is not easy. I’d hesitate to jump to blaming auditors, who are generally trained as accountants, not Quantity Surveyors.

    1. Thanks Borderer, very interesting! A key point you mention there is the difference between validity and quantum. For those reading, my job was on the ‘quantum’ side, i.e. adding the numbers up. We would rely on the QS/delay experts/construction experts to tell us which were the right numbers to be adding up. That might sound like money for old rope, but take a simple example: the salary of a project manager. Perhaps they work on 3 different projects. How do you allocate their salary cost? Evenly between the 3 projects? On the time spent on each project? On the time they should have been spending on each project? Were they allocating their time properly, or were management pushing them to allocate a different way?

      It is a fair point with the auditors. Their job is not to say whether the value of a contract is X or Y, rather to make sure that the contract has been valued in the right way and challenge senior management on that process. As you mention, it’s the job of senior management to ensure the process is undertaken properly. Which I’m currently writing about now for Part 3!

  8. I must admit to a wry smile when you talk about establishing the quantum of a multi-million claim as being “money for old rope”. Been there, bought….etc. And the grey hairs to prove it!

  9. Very interesting, both article and the comments. My only experience with dealing with the likes of Carillion in business is that our FDs never liked construction companies and if we did contract with them, we always wanted very large upfront deposits from them and our collections teams were on them like a rash if there was a sniff of late payment.

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