Meeting of the Parliament

Meeting date: Tuesday, January 16, 2018

Official Report 911KB pdf

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Topical Question Time

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Carillion

To ask the Scottish Government what implications the situation at the construction company Carillion might have on the completion of the Aberdeen western peripheral route and other infrastructure projects throughout Scotland. (S5T-00865)

The Scottish Government has been working to manage or eliminate risks associated with Carillion’s difficulties since July last year and we have contingency plans in place for affected contracts, including the one for the AWPR, which contains a mechanism for the remaining two joint venture partners to deliver the project. We expect that work to continue.

We understand that Balfour Beatty and Galliford Try will now take the necessary steps to jointly deliver the remainder of the project. We will continue to work closely with Aberdeen Roads Ltd to assess and mitigate any impacts that may arise as a consequence of the announcement. Separately, we understand that Network Rail has contingency plans in place to deal with the situation and that those plans will be implemented.

I will convene a high-level meeting with Government officials and agencies this afternoon to discuss key actions and consider plans going forward. Furthermore, we understand that Skills Development Scotland and the Minister for Employability and Training are working closely with Carillion’s training provider in Scotland, Tigers Ltd, to understand how modern apprentices will be affected. SDS has advised me that contingencies are in place to help in a potential redundancy situation.

Carillion was employer to thousands of people, including those employed on the AWPR project. It also had many subcontractors—much smaller firms that will be concerned about any knock-on effect on them. What work is the Scottish Government doing to help those employees and smaller companies throughout Scotland that might now face a very uncertain future?

First, our thoughts are with all those who will be concerned for their jobs. We will do what we can to support them. I advised the Secretary of State for Scotland in a telephone call yesterday morning that the Scottish Government, through its partnership action for continuing employment initiative, stands ready to provide assistance in those circumstances.

We are also continuing to progress discussions with the liquidators and the UK Government about the measures that they intend to put in place regarding the private sector—I mentioned Network Rail—and the UK Government-backed contracts in Scotland. We will be supporting Carillion employees to secure the completion of those contracts. Companies and individuals in the supply chain who are working on public sector contracts have been asked to operate as usual, so there should be no immediate impact on those projects.

A cross-governmental meeting has been convened today to identify ways in which further support can be offered to those who are affected by yesterday’s announcement. That will include representatives from key departments and agencies. We also stand ready, as I said, to offer assistance through PACE.

More information is coming in all the time, and we will take it forward. In addition, we have in place advanced plans to establish a helpline through Scottish Enterprise to help any companies further down the supply chain that want to get more information on the situation.

I thank the cabinet secretary for the assurances that he has given. The work to deal with the situation is obviously on-going, but the AWPR works are one of the biggest infrastructure projects in Scotland and the project will see huge benefits for the north-east. Those of us in the north-east are seeing that it is nearly ready to be completed. What steps can the Scottish Government take to ensure that the other partners in Aberdeen Roads Ltd can carry out the rest of the work without any delay to the completion date?

Gillian Martin may have seen that the two other contractors that are involved, Balfour Beatty and Galliford Try, have advised the stock exchange of their intention to do exactly what she says—to continue with the contract, which is their obligation under the contract that we signed with them, as Aberdeen Roads Ltd. The consortium is responsible for delivery of the project. We have spoken to them requesting that they set out how they propose to fulfil their contract obligation to complete the work.

We understand that the other contractors will now take forward the necessary steps to deliver the remainder of the project. It is a complex process and it may take some time to conclude. However, I reassure the member and others that the AWPR contract is designed to ensure that the project is completed. Meanwhile, Transport Scotland will work closely with ARL to assess and mitigate any impacts that may arise as a consequence of this development.

I associate myself with the concerns that the cabinet secretary expressed for the thousands of employees of Carillion and associated companies, who will be facing an anxious time. The cabinet secretary mentioned that the Scottish Government

“has been working to manage or eliminate risks associated with Carillion ... since July last year”.

Can he provide more information on what actions the Scottish Government has been taking to mitigate those risks?

I have mentioned the major contract, which is the one for the Aberdeen western peripheral route. As each of the profit warnings was issued for Carillion, we put out statements saying exactly what we foresaw as the way forward, which was the continuing obligation and commitment of the partners to see through that contract. We have ascertained that that is the position of the contractors and they have confirmed that.

In the case of other contracts, Registers of Scotland has taken action to ensure that services that Carillion previously provided can be provided by others, and Network Rail has advised us that it has contingencies in place to ensure that two of its contracts—the Waverley and Shotts line electrification contracts—will be completed. It is Network Rail that lets those contracts, of course; we do not do that.

As members would expect, as soon as the first of the profit warnings was issued back in July, action was taken not directly by the Government at the centre but by the different parts of the Government that have been involved with Carillion to mitigate and eliminate where possible any risks to those contracts.

There are many questions to be asked about the collapse of Carillion, but it is clear that our immediate focus should be on jobs and services. Gillian Martin was right to highlight the significant number of employees who work for companies to which Carillion subcontracted work. Will the cabinet secretary meet the Federation of Small Businesses Scotland and others so that subcontractors beyond those that are employed on the Aberdeen western peripheral route can be provided with reassurance? Can he say how many contracts Carillion has in Scotland for facilities management services as opposed to construction? Will he explore the option of returning those to the public sector, if appropriate?

Jackie Baillie’s first point, on the status of subcontractors and smaller companies, is a very important one. The vast bulk of the let contracts relating to the Aberdeen western peripheral route have been let by the consortium and not directly by Carillion. It has let one or two contracts, and we will look further at those, but the vast majority are in the name of the consortium, so they should proceed as previously.

If there are any requests from the FSB to meet, we will do that, although I hope that the helpline that Scottish Enterprise has established, which I mentioned, will satisfy any questions that come from that side of things.

I am happy to provide Jackie Baillie with a list of the contracts that the Scottish Government or its different agencies—I mentioned Registers of Scotland—are involved in. It is a very short list. In fact, I am happy to provide any knowledge that we have about other organisations. Jackie Baillie will know about the West of Scotland Housing Association and Glasgow Langlands. I am happy to provide such information but, in most of those cases, it is for the individual organisations or agencies concerned to ensure that they have alternative arrangements in place. As I mentioned in my previous response, that has been done in almost every case. Alternative arrangements are in place. Whether the agencies and bodies concerned decided to bring those in-house or to seek another provider was down to them. However, as I said, I am happy to provide Jackie Baillie with as much information as possible about those contracts.

I very much welcome the cross-party concern about and attention to the impact on the workforce, and I hope that the cabinet secretary will continue to keep Parliament updated on that.

However, the longer-term context also needs to be recognised. The story of what has happened with Carillion is intimately bound up with many years of domination by a model of delivering public contracts through large profitable companies, but with the public sector bearing the risk and often being expected to bail projects out when things go wrong. Carillion has been part of that model, as has Galliford Try, which the cabinet secretary mentioned, and whose share price has also come under pressure in recent days.

Does the cabinet secretary recognise the dysfunction that that system represents in relation to both the private finance initiative model and the Scottish Government’s own non-profit-distributing model? Does he agree that the Audit Scotland review of the NPD model—which is, I believe, due to take place later this year—needs to take account of the events of recent days so that we can ensure that we can avoid and eliminate such risk in the future?

It is not possible to eliminate all the risk that is attached. Long before PFI was ever conceived, many road and other projects were, of course, tendered for and delivered by the private sector.

I bow to nobody in my opposition to PFI. I have a criminal conviction for refusing to pay my toll on the Skye bridge, which was the first and, perhaps, the most notorious of the PFI projects under the Conservatives, and I opposed in every possible way the PFI contract that my local authority took out for new schools back in the early 2000s. However, regardless of whether there has been a Tory or Labour Administration, the constraints on public sector borrowing have meant that we have had to find ways to fund vital infrastructure projects.

We proposed the NPD solution in order to mitigate the worst effects and the most obscene of the profits that Patrick Harvie talked about. The fundamental point of his question was that Governments should look at what has happened and learn lessons from any incidents like this. I am happy to give that undertaking.

The cabinet secretary has twice said that he understands that the other two members of the consortium for the Aberdeen western peripheral route will take up the slack in the contract. Will the timescale for that cause any delay in completion of the contract? In what month will the AWPR be opened to traffic?

It is not just me saying that the contract will be picked up by the two remaining contractors: the contract itself says that that must happen, and it is to the credit of the people who devised the contract that it includes that guarantee. The contractors are also saying that; they gave that commitment to the Stock Exchange very quickly, as has happened for other joint ventures south of the border. Nothing that I have said necessitates a delay to the AWPR project, because of that guarantee.

The former Carillion employees may be taken on by the other contractors, because many of them serve vital parts of the project. We will be interested to see that, and we will encourage the contractors to take them on. Nothing in the change that has happened necessitates a delay.

Of course, we will keep our eyes on further developments as they take place. Information is coming in to us all the time. The final announcement of the liquidation came overnight on Sunday night, although we had previously had profits warnings. We will continue to work with the contractors to ensure that we deliver the contract as it is stipulated.

The thoughts of us all will be with Carillion employees and the subcontractors and suppliers.

I am sure that the cabinet secretary is aware that Carillion has contracts for servicing Ministry of Defence properties in Scotland, which includes 650 properties in Moray connected to RAF Lossiemouth and accommodation at Kinloss barracks. I welcome the assurances that the MOD has given so far that there will be minimal disruption to servicing of the MOD properties. Will the cabinet secretary explore those assurances when he next speaks to the MOD, and return with more information to Parliament, or get back to members who have MOD properties in their constituencies, so that we can give the assurance to families that their homes will be serviced and maintained?

Richard Lochhead has raised a good point. I think that the United Kingdom Government has substantially more contracts with Carillion in Scotland than has the Scottish Government: the Moray properties are among the contracts. I refer the member to the assurances that have been given so far by the MOD, to the effect that there should be no direct impact on defence contracts, including the services that are provided to armed forces personnel and their families. Housing that is provided under the contract will continue to be serviced, catering facilities will continue to be provided and buildings and offices will be cleaned. As the member suggests, I will seek further information from the MOD. In my telephone call with the Secretary of State for Scotland yesterday morning, I pointed out that we have the partnership action for continuing employment scheme, which the UK Government is involved in through Jobcentre Plus. If any of the contracts for which the UK Government is responsible in Scotland were to result in redundancies, we would make sure that PACE was deployed to help employees in that situation.

My thoughts are with the workers and their families, who are clearly having a very difficult time. I welcome the Government’s contingency plans to help to mitigate Carillion’s collapse. I am pleased that the cabinet secretary has said that there will not be a delay in the AWPR. However, will the collapse add extra cost to the AWPR?

I am very concerned about the subcontractors who work not just on the AWPR contract but across the country. Will they be paid? Are we facing many small companies going bust because of this? Will the people who work with Carillion on the AWPR now be taken on board by the other two members of the consortium, or are they now unemployed?

I have sought already to answer some of those questions. On Peter Chapman’s final question, I think, as I said, that it is likely that the two remaining contractors will be required to do the work that was previously done by employees of Carillion. I do not want to be too definitive, but I think that there is a very good chance that they will be taken on by the other two members of the consortium. Some 70-plus direct employees of Carillion are employed on the contract, and about 190 people are employed on other terms, including some agency staff. We are coming towards the end of the contract, so it might well be the case that all that resource will have to be there.

In relation to some of the other contracts, the UK Government has said that the Transfer of Undertakings (Protection of Employment) Regulations 1981 will apply in certain circumstances.

We cannot give a cast-iron guarantee on this, but I think that there is a good chance that many of the workers will be re-employed. For those who are not re-employed, we have offered the assistance that I set out previously.

On cost, the issue is in some respects the same as it is in relation to timing: we do not think that costs are associated with the situation. The member might have seen reference by the remaining partners to a “hole” in the project of between £40 million and £80 million. That is for the partners to consider, with the banks and lenders who are part of the consortium. It is not for the Scottish Government to fill that hole. However, we will consider whether there are additional costs, although we do not expect any. We are in dialogue with the companies involved: I again undertake to keep Parliament updated, as things progress.

We can squeeze in two final questions.

As the cabinet secretary said, the two remaining partners in the Aberdeen western peripheral route contract are taking up the slack. I am sure that he agrees that the failure of one of the three partners has been extremely serious and that the failure of another would be catastrophic. In the past six months, has the Government assessed the impact of the AWPR contract on Carillion, which has now gone out of business? Has it assessed the potential impact on the other two partners in the consortium?

I do not want to speculate too much on the very hypothetical situation of a second partner coming out of the contract. In relation to Carillion, we have undertaken the checks that Lewis Macdonald would expect us to undertake—not least when a situation was signalled by the profit warnings, which were public. We carry out such checks and, of course, we carry out checks on the contract in order to make sure that it is progressing as it should.

I make no bones about it: there is no information that suggests that the eventuality that Lewis Macdonald talked about will happen. Of course, if it were to happen, the remaining contractor would be responsible for taking things forward. That is the nature of the contract. That would be very unfortunate, but I have no information that suggests that that will happen. I confirm to Lewis Macdonald that we carry out checks of the nature that he described.

Last year, Carillion was awarded a contract to deliver electrification of the Shotts rail line, as a vital part of ensuring connectivity in the central belt. The cabinet secretary mentioned that contingency plans are in place. Will he say what guarantees are in place that the project will continue and be delivered? Does he anticipate that the contract will be awarded to another firm, or that the Government will in some way be able to support the existing team that is delivering it? If the contract is to be awarded to another firm, what timescale is the cabinet secretary working to for transferring the contract?

I clarify to Jamie Greene that the Government did not let that contract; that contract was let by Network Rail. Of course, I am not denying that the Government will stand behind and pay for that contract in one way or another. We have been in touch with Network Rail, which has given us the assurances that the member seeks that the project has contingencies in place and is expected to continue as before. I am happy to see whether there is further information that I can provide to the member, but Network Rail has provided an assurance that the project will be completed.

I thank the cabinet secretary and members for their forbearance. There was a great deal of interest in the topic.