Balfour Beatty vs Carillion: A tale of two builders

Both firms faced the same problems, but why has Balfour been able to thrive when Carillion failed?

by Stephen Jones
Last Updated: 14 Mar 2018

It is August 2014. Balfour Beatty, Britain’s biggest construction firm, has narrowly survived a failed month-long takeover bid by its smaller competitor Carillion.

Bogged down by legacy issues - caused largely by a stockpile of low margin contracts it accepted following the financial crash - and having suffered eight profit warnings in just two years the group was in rather sticky concrete.

Fast forward three years and six months later and the companies have followed two very different paths.

Following a rapid six-month decline - arising from similar legacy issues - Carillion collapsed in January 2018 in a heap of unpaid debt. In contrast Balfour has just announced a huge pre-tax profit jump to £117m in 2017, and a doubling of underlying profit.

But why have two had such differing outcomes? Their contrasting fortunes boil down to a simple willingness to address internal issues.

Smelling the coffee

While Carillion failed to keep an eye on its balance sheet, continuing to accept unprofitable contracts and overestimating their value, Balfour enacted a programme of reform to directly address its own.

Shortly after the takeover bid, KPMG was called in to carry out an in-depth review of operations, CEO Leo Quinn was appointed in January 2015 and in February of the same year the contractor announced the implementation of it’s ‘Built to Last’ business transformation programme.

A large part of this has involved streamlining operations, for example selling off assets in the Middle East and stakes in the M25 Connect Plus consortium, re-organising some areas of leadership and greater diligence when acquiring new contracts.

Of course there have been some negatives, largely in the guise of a one-off £44 million legal provision to cover Carillion’s share in the Aberdeen Western Peripheral route joint venture (which the Balfour board conveniently decided to account for separately.)

But it’s likely Quinn won’t mind too much - after all he still has a firm to take into the future. Carillion on the other hand simply didn’t learn. Bosses continued to drive blindly into unfeasable contracts, they refused to smell the risk management flavoured coffee and ultimately paid the price.

Experts want the industry to take the Carillion collapse as a wake up call, but Balfour has been awake for some time. This project is well on its way to completion.

 Image credit: Shutterstock/igorstevanovic 

Tags:

Stephen Jones recommends

Why Carillion collapsed

Read more

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Why you keep ignoring hard truths

Research finds people choose wilful ignorance 32 per cent of the time.

Pret's problem is everyone's problem

Opinion: City centre ecosystems have stimulated and sustained countless businesses. We abandon them at our...

So you can stop guilt-tripping us back to the office now, Alan Sugar ...

The Apprentice star has expressed concerns that the City of London is like a morgue,...

We’re all part timers now

Rishi Sunak’s Job Support Scheme could have important - and welcome - implications for job...

5 things your remote workers want you to know

But are scared to tell you.

How friendly should you be with your employees?

Leaders discuss where the boundary between professional and personal lies.