10. While Carillion's acquisitions had enabled it to purchase rivals for its home turf, in Mowlem and Alfred McAlpine, and expand into the new market of energy efficiency services, in the case of Eaga, they had not delivered the returns the company had projected. Richard Howson, Chief Executive from January 2012 to July 2017, explained that the company turned its attention to bidding aggressively on contracts to generate cash:
We did not have any money to buy competitors, as we had done in the past.
We had to win our work organically. We had to bid and we had to win [...]68
Expansion into new markets was a key part of Carillion's strategy, and led to ventures into Canada, the Caribbean and the Middle East as it sought opportunities for growth.
11. Carillion's forays overseas were largely disastrous. The most notorious example was a 2011 contract with Msheireb Properties, a Qatari company, to build residential, hotel and office buildings in Doha. The project was due to complete in 2014, but remains unfinished.69 We heard claim and counter-claim from Carillion's directors and Msheireb Properties, who each said the other owed them £200 million.70 Regardless of the true picture-and we are baffled that neither the internal nor external auditors could tell us-it is abundantly clear that the contract was not well-managed by Carillion. A July 2017 Carillion board "lessons learned" pack conceded as much, citing the company's weak supply chain, poor planning and failure to understand the design requirements up front.71 Carillion also had difficulty adapting to local business practices. Richard Howson, who after being sacked as Chief Executive in July 2017 was retained in a new role to maintain morale and negotiate payment in key failing contracts,72 explained, "working in the Middle East is very different to working anywhere else in the world".73
12. Carillion's directors attempted to ascribe the company's collapse to unforeseeable failings in a few rogue contracts. But, responding to difficulties in UK construction, Carillion knowingly entered risky new markets.74 A 2009 board strategy paper rated the Dubai market outlook as 3/10,75 but Carillion's 2010 annual report said it would "target new work selectively" in the City.76 With reference to Carillion's problems with Msheireb, Richard Howson told us "we only won, thankfully, one construction project in Qatar".77 Yet Carillion bid for 13 construction contracts in that country between 2010 and 2014.78 The overriding impression is that Carillion's overseas contract problems lay not in a few rogue deals, but in a deliberate, naϊve and hubristic strategy.
13. The July 2017 lessons learned pack highlighted the breadth of problems in Carillion's contract management.79 Andrew Dougal, Chair of the audit committee, noted there appeared to be a "push for cash at period end", which would reflect well in published results, and "inadequate reviews on operational contracts".80 As a large company and competitive bidder, Carillion was well-placed to win contracts. Its failings in subsequently managing them to generate profit was masked for a long time by a continuing stream of new work and, as considered later in this chapter, accounting practices that precluded an accurate assessment of the state of contracts.
14. Carillion's business model was an unsustainable dash for cash. The mystery is not that it collapsed, but how it kept going for so long. Carillion's acquisitions lacked a coherent strategy beyond removing competitors from the market, yet failed to generate higher margins. Purchases were funded through rising debt and stored up pensions problems for the future. Similarly, expansions into overseas markets were driven by optimism rather than any strategic expertise. Carillion's directors blamed a few rogue contracts in alien business environments, such as with Msheireb Properties in Qatar, for the company's demise. But if they had had their way, they would have won 13 contracts in that country. The truth is that, in acquisitions, debt and international expansion, Carillion became increasingly reckless in the pursuit of growth. In doing so, it had scant regard for long-term sustainability or the impact on employees, pensioners and suppliers.
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68 Q606 [Richard Howson]
69 Letter from Msheireb Properties to the Chairs, 27 February 2018
70 Q482 [Richard Howson]; Letter from Msheireb Properties to the Chairs, 27 February 2018
71 Carillion plc, Minutes of a meeting of the Board of Directors, 7 June 2017 (not published)
72 Letter from Richard Howson to the Chairs, 21 February 2018
73 Q428 [Richard Howson]
74 Q526 [Richard Howson]
75 Carillion plc, November Board meeting Board Strategy Session, November 2009
76 Carillion plc, Annual Report and Accounts 2010, p 10
77 Q526 [Richard Howson]
78 Letter from Richard Howson to the Chairs, 21 February 2018
79 Carillion plc, Meeting of the Board of Directors, 7 June 2017 (not published)
80 As above.