Carillion liquidation - Implications for Schools and Academy Trusts

The nation’s second-largest contractor, Carillion, has gone into liquidation. This contractor was heavily involved in the education sector providing construction and facilities management (“FM”) services at schools and academies across the country. Carillion were also present on many local authority and ESFA frameworks.

We are in contact with a number of schools and academy trusts where Carillion has been involved in construction projects or has been providing FM services to provide assistance where necessary. If you require advice on how this issue will impact on your school or academy trust, please contact us.

Current Construction Projects

Direct building contracts with Carillion

If the academy trust or school has directly entered into a building contract with Carillion, we suggest that you take the following steps:

• Locate a copy of your building contract to establish whether you have a right to terminate for insolvency (most standard form building contracts do allow for contracts to be terminated for this reason).  Terminating a building contract should not be undertaken lightly and we recommend that you take legal advice before issuing any notice of termination.

You should also consider the following questions before terminating a contractor's employment on grounds of insolvency:

• Are all collateral warranties in place?  Have you received copies of any performance bonds and parent company guarantees?  Are there any other relevant documents – i.e. funding agreements whereby any termination needs the funder’s consent?
• How is the site protected?  In an insolvency situation it is not uncommon for site materials to disappear if not secured.  We suggest that your contract administrator should take a written and photographic record of the progress of the works and the materials on site. Take steps to secure plant and materials.
• How much have you already paid to the contractor? You should be contacting your project manager/contract administrator to establish whether you have overpaid or underpaid the contractor and to identify the position on retention monies and when these may need to be released.
• How will the project be completed? Contact Carillion’s insolvency practitioner (PWC) to see if you can obtain confirmation of its intentions regarding your building contract.

Indirect building contracts with Carillion

Where Carillion was undertaking a construction project at a school or academy, but the relevant school or academy trust does not have a direct contractual relationship with Carillion, the position is different. For example this would include the following scenarios:

• a local authority or the ESFA has entered into a building contract directly with Carillion for the benefit of the school or a group of schools; or
• the local authority or the Education and Skills Funding Agency has, under a PFI scheme/PSPB PF scheme, entered into a project agreement with a PFI Contractor for works and FM services at a school or group of schools, with the PFI Contractor directly contracting with Carillion to provide construction works.

In these circumstances the relevant school or academy trust cannot pursue any actions directly against Carillion as there is no direct contractual relationship with Carillion (although there may be a direct contractual relationship between the school/academy trust and the party that procured the project e.g. the local authority or the ESFA). In the first instance you will therefore need to engage with the relevant party that procured the project, to ascertain what is proposed in relation to the ongoing construction works.

FM Services

Where Carillion has been providing FM services at schools or academies, there is not usually a direct contractual relationship between Carillion and the school and/or academy. For example there may be the following type of arrangements:

• the relevant local authority entered into a group school FM contract directly with Carillion for the benefit of the school or a group of schools; or
• the local authority or the ESFA, under a PFI scheme/PSPB PF scheme, entered into a project agreement with a PFI Contractor for works and FM services at a school or group of schools, with the PFI Contractor directly contracting with Carillion to provide the FM services.

Again in these scenarios there will often be a direct contractual relationship between the school/academy trust and the local authority/ESFA (as appropriate). In these circumstances you will therefore need to engage with the relevant party that procured the project, to ascertain what is proposed in relation to the FM services. The Government has given certain assurances to ensure the continuity of the FM arrangements in schools, and we are expecting the special managers to make arrangement to ensure the continued payment of the relevant staff. In due course, we would expect the replacement FM contractor to step into the shoes of the Carillion company to ensure the continuity of the arrangements. In some circumstances, it may be possible that the services revert to in-house provision but this would be with the agreement of all parties, and this may not always be feasible where there are PFI arrangements.

If you need immediate assistance or further information in relation to how this issue impacts on construction projects please contact

Caroline Taylor
01225 326796
​Click here to email Caroline

If you need immediate assistance or further information in relation to how this issue impacts on PFI Projects or FM Services please contact

Graham Burns
020 7324 1760
​Click here to email Graham