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Carillion paid price for 'chasing revenue at the expense of profit'

17 January 2018

Thoughts on the demise of Carillion have been shared by the PFM Editorial Advisory Board (EAB) during its latest meeting yesterday afternoon.

Speaking ahead of the meeting, FM Guru consultancy founder and winner of the 2016 PFM Awards Peter Middup trophy Martin Pickard said the company had pursued an aggressive commercial policy for many years.

"In common with some others, [they] have chased revenue at the expense of profit and service to offset the cash position of their construction business.

"This has played right into the hands of government procurement policy which is more focused on price than on service or commercial sustainability," said Mr Pickard.

"The numbers involved are so big that it has dragged the whole market down, creating a benchmark that both public and private procurement exercises try to match to the detriment of customers and suppliers alike," he said.

Profit levels have then been insufficient to compensate for toxic construction projects and some businesses (including Carillion) have used aggressive and short term accountancy practices to defer the problem in the vague hope it will all come right in the end, he continued.

"Some have got away with the gamble, Carillion didn’t. We can (rightly) criticise the clients (including government) who have been daft enough to accept under price bids and point at the government policy of awarding so much of their work to the same handful of providers," said Mr Pickard.

"This has done huge damage to our sector. Many smaller businesses have gone to the wall because they couldn’t compete and many clients have suffered from poor service because suppliers couldn’t deliver for the price in the contract."

Mr Pickard and PFM EAB members shared thoughts on the damage done to the FM industry.

Regarding the effect the situation has had on attitudes towards outsourcing, members agreed that the Carillion example showed the worst side but there were also many examples where this has been successfully implemented to the benefit of all concerned.

However, the Carillion issue should provide the impetus to address the bad practices that exist within FM, said PFM EAB members, including the education of clients to appreciate how the outsourcing model should be procured and implemented.

Opinion was also voiced that now was the time for industry organisations to take a leading role in addressing industry issues, mentioning BIFM, RICS and the IFMA in particular.

BIFM initially declined PFM's invitation to comment on the issue, but issued a statement this morning encouraging Carillion 'learners' to continue studying for FM qualifications, while expressing sadness and shock at the company's failure.

It further stated that it was "too early" to draw conclusions about the issue, but said it had "begun to reflect on the evolving landscape for FM".

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