Carillion board papers reveal “pervasive institutional failings”

New inquiry finds 

The Committees are today publishing extracts from a presentation made to Carillion’s board on 22 August 2017 by EY as part of “Project Ray”, and the corresponding board minutes, that begin to reveal the “pervasive institutional failings” behind the ‘upbeat’ face the company tried to present to the markets and the public.

The summary of the presentation to the board includes EY’s observations that:

• “Lack of professionalisation and expertise” – “consistent use of quantity of people to compensate for limitations in quality or skill set (particularly commercial acumen)”
• “The value that the Group provides to the performance of the business is not clear”
• The business prioritised short term benefits over sustainable performance
• “Inefficiencies of structure with excessive layers of management”
• Lack  of transparency of performance at the appropriate levels
• “Culture of non-compliance”

The corresponding minutes record the board’s discussions of the presentation, including:

“There was a reference to a culture of non-compliance. Ms Bitar clarified that she meant that this was the case in relation to ignoring central procurement requirements.”  

“A number of issues were covered in discussion, including the role of the group’s Values; the possibility that the longevity of some staff in the business had led to “wilful blindness”

“Mr Dougal noted that there were two themes: firstly, the apparent lack of financial transparency which the Board had become increasingly aware of over the past year, or perhaps more, with one-off items; and secondly, as working capital moved away from us, there were apparently significant operational errors on big contracts, which had not obviously been the case.”

There was an issue of management capability and quality to influence the number of major projects on the go at the same time: in the UK there were three huge projects, which he did not recall previously, and problems had arisen because they were signed-up too quickly in order to get cash in – for example Royal Liverpool University Hospital in 2014 to bring in advance cash.

There was a reference to a lack of accountability. Ms Bitar noted that she had observed a bias toward delivery – and that a lot of what EY had observed had not come as a surprise to people;

There were some pockets of key strengths, but a culture of making the numbers.

From the end of October, EY were producing weekly cashflow forecasts, which, by mid-December, showed that the company would have no “headroom” left by March 2018 and would therefore effectively become insolvent.