Lendlease seated nicely for Carillion contracts
Australia’s Lendlease and other major construction contractors are in the box seat to take over key projects once controlled by the UK’s second largest construction company, Carillion, which was placed into liquidation this week.
Carillion held about 450 government contracts from construction projects to roads, railways and schools before it collapsed under the weight of its debts after a series of construction projects ran into trouble.
Lendlease’s chief executive of International Operations, Dan Labbad, declined to comment on the opportunity to step in given the extreme sensitivity around Carillion’s collapse, but said Lendlease had been cautious about its bidding for contracts.
“It is a shame to see any industry peer go into such a difficult experience,” Mr Labbad said.
“We have always taken a very selective approach to bidding on construction projects.”
The UK government has continued to provide funding to maintain key government services while Carillion is in receivership, but how and when any process will start for replacing Carillion on major construction projects is still to be decided.
A “value for taxpayer” test is likely to take place for government-funded projects, which may mean a new procurement process for each.
Companies such as Galliford Try, Balfour Beatty, Laing O’Rourke and Kier Group are some of the construction companies that may compete for the projects Carillion was undertaking.
UBS analysts noted that the removal of Carillion from the sector was unlikely to ease the highly competitive bidding in the sector.
“Ultimately the situation around Carillion is a function of a competitive outsourcing and construction markets in the UK, amplified by excessive financial leverage which has built up over recent years,” UBS’ Gregor Kuglitsch and Miguel Borrega wrote in a note to clients.
“While the departure of a competitor may ease this, we think the impact will likely be small given the fragmented nature of the market.”
Having previously operated under the Bovis name, Lendlease’s footprint in project management and construction work is extensive in the UK and recently included landmark projects like the Imperial War Museum, the refurbishment of the architecturally renowned Tate Britain and the redevelopment of the National Theatre.
However at an international operations update in June last year, Lendlease’s Mr Labbard said the company had been cautious about which projects to compete for.
“Our internal pipeline also means we have not felt the need to pursue pipeline at below target margins,” he said.
“We have a growing backlog and healthy pipeline. Of note, we secured Google Headquarters in London where we will be main contractor for their King’s Cross Headquarters.”
Source: AFR