Lessons learnt from the Carillion collapse part 3: managing projects with failing contractors webinar Thursday 30 May 2019 presented by Alastair Greenan The link to the write up page and resources of this webinar: https://www.apm.org.uk/news/lessons-learnt-from-the-carillion-collapse-3-managing-projects-with-failing-contractors-webinar/

1. Lessons from the Carillion Collapse
Webinar No.3:
Managing Projects with Failing
Contractors
Presenter: Alastair Greenan

2. The Carillion collapse in early 2018 seemingly took many by surprise as they
were ‘too big to fail’.
This webinar is the third in the series and looks at what to do when your
contractor starts to fail financially in the middle of the project.
Overview

3. Overview
This webinar will cover:
▪ Example Project Background/Context
▪ Underlying Issues
▪ Early Warning Signs
▪ When and How to Intervene
▪ Key issues you may need to work through
▪ Final Q&A’s

4. The Projects
Large infrastructure programme in the Middle East delivered as part of a
new hydrocarbon development delivered in partnership with a national oil
company. Infrastructure comprised 10+ individual projects, delivered by
separate contractors. This webinar considers two of these projects:
▪ Project 1 – Contractor was a historically a supplier of vendor equipment
packages moving into the major EPC project space through a new division
▪ Project 2 –Contractor was a traditional building contractor, well established in
region (40 years+) with a good track record
▪ Both Contractor companies were 51% locally owned
A robust sourcing process was undertaken

5. The Unknown
Although a thorough and detailed assessment of the successful bidders was
undertaken before both awards, a number of risks were either not possible to
identify, or quantify:
▪ The customer had minimal in-house intelligence or experience of the bidders
▪ Customer did not have an established network of peers it could access for
intelligence/feedback
▪ Bidders were Joint Ventures
▪ Customer had limited/no knowledge of market conditions
▪ Some/limited issues were identified with almost all businesses operations in the
country/region (hard to detect real issues versus that which was
common/prevalent and part of the risk of operating in region)

6. Underlying Market Problems
▪ The Country’s National Economy was
almost entirely dependent on Oil and Gas
▪ Contracts awarded 2014/2015 when oil
prices plummeted
▪ The Government was one of the largest
customers in the sector
▪ Payment and cash flow problems rapidly
proliferated through the supply chain

7. Underlying Contractor Problems
Contractor 1:
▪ Just expanded on the back of a buoyant market, setting up a major
projects division
▪ Not accustomed to executing projects with such high front end cash flow
▪ Payments heavily linked to progress (more difficult to achieve payment
milestones)
▪ Business model required Contractor to win and deliver one project of this
size ($100M+) per year
▪ Contractor did not have incoming cash flow

8. Underlying Contractor Problems
Contractor 2:
▪ Contractor was finding it near impossible to get paid for work in progress
or completed
▪ Contractor had substantive overheads and a dwindling forward order book
and prospects
▪ Market sector in free fall
▪ Cashflow and payment problems had cascaded
▪ The parent multinational facilities management and construction services
company were also in severe financial difficulties

9. Early Warning Signs
Early warning signs of collapse often appear as minor ‘business as usual’
problems:
▪ Reduced performance in a previously well running team
▪ Often small but critical things not available (being held hostage)
▪ May well feel like a lack of focus, rather than a deep structural problem
▪ A slow but steady decline in progress that doesn’t feel like the crisis it
actually is…

10. Spotting the Problem
▪ Be conscious of changing circumstances and market conditions
▪ Look for the Early Signs
▪ Actively tracking key commitments and testing when not met
▪ Use the Mark One Eyeball at sub contractors/suppliers
▪ Don’t just talk to the boss – speak to all levels of the project organisation
and see if the message is consistent

11. How to Intervene
▪ It’s not about the Contract (it is, but it’s not)
▪ Success is actually all about people
▪ Having said that, make sure you operate within the frame of the
contract at all times
▪ Help them help themselves
▪ Don’t get carried away

12. How to Intervene – The Process
▪ Park your frustration and the blame
▪ Work the problem with them, without absolving them of their
responsibilities
▪ Focus on a one team approach (hard on the issue, not the person)
▪ Identify critical resources and the funds required to release them
▪ Agree and verify back to back payments
▪ Only make funds available within the frame of the contract

13. How to Intervene – The People
▪ Key Subcontractors - be prepared to speak to them (with the Contractor
present) to smooth the way
▪ Ensure the retention of the core project team
▪ Make sure the contractor is honouring workforce notice periods and
demobilisation dates, and that all monies owed are paid
▪ Be a compassionate leader – your behaviour and actions set the tone for
the team

14. How to Intervene – The Long View
▪ Ensure that all the key elements for the operational phase are
safeguarded
▪ Ensure demobilisation and remediation requirements are delivered
▪ Establish direct relationships with key suppliers ahead of Contractor
demobilisation

15. The End Game
▪ Everyone goes home SAFE
▪ Worker welfare is maintained
▪ Build quality is maintained
▪ Ongoing operational support is secured
▪ Schedule delays and additional costs are minimised
▪ Claims avoided/minimised

16. Questions?

17. Contact Details:
Alastair Greenan
Mob: 07973 211771
email: engenious@hotmail.com

18. This presentation was delivered
at an APM webinar
To find out more about upcoming
webinars please visit our website
www.apm.org.uk/events