The Canadian Centre for Policy Alternatives MB released a report today The Collapse of P3 Giant Carillion and Its Implications.
The report, by University Economist Dr. John Loxley, explains the role Carillion has played in the UK’s longtime use of P3s and how the multi-national’s bankruptcy could reverberate around the world. Carillion was involved in many large P3 ventures meant to provide reliable service to schools, hospitals, prisions, and major public infrastructure projects. It had annual sales of Ca$9 billion, and employs 46,000 workers worldwide, including 6,500 in Canada.
Carillion collapsed when it failed to meet its huge debt commitments, accumulated as a result of Carillion’s over expansion of its P3 ventures. The UK government has had to take over Carillion’s responsibilities, and is now scrambling to feed school children, care for hospital patients, and make sure that prisons remain staffed and that roads are maintained.
“This puts the lie to the principal advantage claimed for P3s, which is that they are supposed to transfer risk from the public to the private sector” according to Loxley.
Loxley also raises the issue of the auditor’s oversight of P3 companies: “Only ten months before liquidation, its auditor, KPMG, had given its seal of approval to Carillion’s financial statement. Yet Carillion announced the deterioration of its finances in early December 2016 which was followed by huge and unsustainable increases in its debt. How could KPMG not have realized this?”
Carillion Canada is the private partner in many P3s across Canada, with over Ca$1 billion in annual revenue. It remains to be seen how the liquidation will play out in Canada, but if the stability of the Canadian operations becomes questionable, the provincial and territorial governments involved (Ontario, Alberta, Saskatchewan, NWT) will have to be prepared to step in to ensure services are not discontinued, particularly where health care services are concerned.
Loxley claims that one thing is for sure: “until the future of Carillion’s Canadian operations are clarified, workers will worry about their jobs, incomes and pensions.”
In Manitoba Carillion, through its purchase of BC company Rokstad, was awarded a $200 million contract by Manitoba Hydro to work on the Bi Pole III transmission line. Rokstad’s sub-standard performance has increased the risk that the project will not be completed on time and Hydro is now closely monitoring its work to reduce further risk.
The report concludes that the Carillion collapse shows unambiguously that ultimately government is on the line for risk. It is time to cease using P3s and bring infrastructure building and maintenance back into the public sector.
Source: Canadian Centre for Policy Alternatives Manitoba Office