‘An insane business model’ | Paul Morrell on Carillion

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  1. Paul,
    Thank you for your article that one of the main factors that affects the performance of a contractor “The Business Model”.
    The collapse of a major firm needs to be analysed in fine details to find out the real root causes.
    I am afraid to say that the series of major firms’ collapse started after year 2000. This is not confined to construction only but to other businesses as well.

  2. This assumes that the ‘customer’ is naive and doesn’t have a plethora of advisers.
    How often is this the case?
    All of the advisors work to a brief and all will be conscious of the ‘value’ of their input.
    For any advisor or team of advisors to sign off a tender that they know represents poor value or is impossible to perform at the price is negligent in the extreme.
    Either that or they are anticipating the ‘extras’ that come from protracted wrangling during the course of the contract or during the final negotiations.

  3. The general tone of most of the writing I have seen about Carillion, and the Parliamentary enquiry have taken a very judgemental, tut-tut, type view of the way this major Contractor ran it’s business.

    There is no doubt that it had its short-comings but no-one seems to want to talk about the reasons why any major corporation would want to take the sort of risks Carillion were taking.

    The reality is that Construction procurement and dispute resolution and avoidance remain very flawed processes within construction. Very few employers are able, or even interested in identifying the true value of a project at the procurement stage with most interested in the lowest cost with the greatest risk to the contractor. The competitive tender process continues to result in an award to the Contractor who’s closest to the brink in terms of risk combined with the lowest margins. If the project proceeds with perfect delivery, execution and results in no disputes and the Contractor gets paid everything they are due the Contractor might hope to make a margin of 1-2%. In what other industry would this be the case?

    Until the industry comes up with a better method of selecting the right contractor and awarding projects at a sustainable price the status quo will remain with a continued lack of investment in training and innovation and monumental business failures.

  4. Richard Howson was a player hence his introduction of non claw back of bonuses excepting very limited circumstances. He has in fact done the FTSE a favour by exposing Auditors and their convenient relationships with greedy Directors.

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