Carillion: the story of an announced collapse

The supply chain risk and operational management are inseparable. When one of them is neglected, collapse is only a matter of time. The Carillion case proves unequivocally: the supply chain risk does not explode from day to day. It accumulates. Slowly. Quietly. It is the story of an announced collapse, where each signal was visible, each alarm was documented, and no one wanted to stop listening.

2008 : The foundations

It all begins with the 2008 global financial crisis. Carillion, like many major construction companies, decides to aggressively expand on British public contracts. Hospitals. Schools. Railways. The goal is to grow, at any cost.

To finance this expansion, the company adopts a strategy that will become its condemnation: it imposes on suppliers payment times up to 120 days. Four months. In an area where liquidity is oxygen, this choice creates a huge pressure on the whole supply chain.

2012-2015: Ignored signals

Over the next few years, Carillion’s budgets tell an increasingly worrying story. Debts grow. The margins are thinned. Public contracts are won at increasingly lower prices, often at a cost, in order to maintain the turnover.

Internally, alarm signals exist. Some managers report them. But the board prefers to look elsewhere. Press releases continue to be optimistic. Dividends continue to be paid to shareholders. The facade holds.

2016-2017: The Ponzi scheme is cracked

At this point, Carillion operates as a Ponzi scheme. Use new contracts to pay for previous debts. Charges debts to subcontractors for about £350 million. And it continues to win new public contracts, not because it is competitive, but because it needs fresh liquidity to survive.

In 2017, the company released three profit warnings in only six months. The stock in stock fell by 80%. Yet the British government continues to award new public contracts. No one wants to believe that such a colossus can really collapse.

January 2018 : The collapse

On January 15, 2018, Carillion declared insolvency. It is the biggest failure in the history of the British construction industry.

The numbers are devastating: £1.5 billion in debt. 30,000 subcontractors left without payment. Thousands of direct employees without work. Boats blocked all over the country. The British State forced urgent action to ensure the continuity of essential public services.

A domino effect that no one wanted to prevent.

What Carillion teaches us

The story of Carillion is not the story of a sudden crisis. It’s the story of ten years of unknown signals.

Unsustainable payment times were visible in contracts. Growing debts were documented in balance sheets. The fragility of the supply chain was evident to anyone who wanted to look.

Monitoring the financial health of its suppliers is not a luxury. It’s a necessity. Diversifying the supply chain is not an excessive precaution. It is the difference between a resilient company and a watch bomb.

Conclusion

Carillion had everything: billionaire public contracts, thousands of employees, decades of history. She didn’t have one thing, a serious supply chain risk management culture.

The risk was there. For years. Visible to all. And ignored by everyone.