Carillion fallout deepens as workers face pay being stopped in 48 hours

Thousands of staff who worked for the collapsed construction firm Carillion inside private-sector companies will have their wages stopped on Wednesday unless their jobs are rescued by other firms, the government has said.

Experts also said up to 30,000 small firms are owed money by Carillion, which crashed into liquidation on Monday morning, with insolvency practitioners reporting an immediate spike in calls from worried business owners.

Ministers were holding an emergency meeting on Monday night in an effort to limit the damage caused by the collapse of the the sprawling construction and support services business.

As the fallout spread, the Cabinet Office minister, David Lidington, faced mounting pressure over the government’s oversight of the firm’s increasingly precarious finances in the months leading up to its failure.

Lidington told parliament the government would continue to pay those among Carillion’s 19,500 UK staff who work in public sector jobs, such as NHS cleaners and school catering.

But he admitted thousands of Carillion’s private sector workers – who perform jobs ranging from cleaning to catering, security and postroom services to organisations such as Nationwide building society and BT Openreach – would be cut loose after 48 hours.

“The position of private sector employees is that they will not be getting the same protection that we’re offering to public sector employees, beyond a 48-hour period of grace,” Lidington said.

He added that this would give time for Carillion’s private clients to decide if they wanted to terminate the contracts or step in to cover wages themselves.

“I think that is a reasonable gesture towards private sector employees,” he said, adding that a Jobcentre Plus helpline had been set up.

The impact of the company’s implosion was immediately felt on Monday as workers at the Midland Metropolitan hospital – being built by Carillion – were locked out and sent home. The hospital, together with another in Liverpool, is at the centre of the problems that have beset the business. Both are substantially delayed and over budget.

In a video released on Monday night, the Labour leader, Jeremy Corbyn, called Carillion’s collapse a “watershed moment”, adding that it was “time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced the public of billions of pounds”.

Vince Cable, the Liberal Democrat leader and former business secretary said: “The government has mismanaged contracts so that fat cat bosses are able to get away with millions, hedge funds are able to make millions, while their jobs are at risk.”

Shadow Cabinet Office minister Jon Trickett asked Lidington why Carillion was not overseen by a crown representative – a monitor usually appointed to observe government suppliers in financial difficulty – during the three months leading up to its liquidation.

He said that “the House will conclude [the Cabinet Office] was recklessly complacent”.

Earlier, civil service chief executive, John Manzoni, told the public administration and constitutional affairs committee, which is now to launch an inquiry into outsourcing, that the crown representative was “rotated out” over the summer.

Manzoni said it was not until November that officials “really started to notice” the problems at Carillion, whose chairman, Philip Green, is an adviser to the prime minister on corporate responsibility. Between July and November, Carillion issued three major profits warnings and its shares had crashed by 91%.

However, Manzoni insisted that a team watching events at the company had “played a blinder”.

While Carillion’s private sector staff face uncertainty over their pay, the company’s former chief executive Richard Howson is still currently entitled to a £660,000 salary, even though he quit in July over the company’s dismal performance.

Lidington declined to say whether Howson, paid £1.5m last year, would still get the money but he said official receivers managing the remains of Carillion could impose “severe penalties” on former directors.

The Institute of Directors described a change to Carillion’s pay policy in 2016 which made it harder for the company to reclaim bonuses as “highly inappropriate”.

Amid concern about continuity of public services, the prime minister’s official spokesperson said the government had taken steps to make sure services are delivered “as normal”.

But within hours of the firm’s collapse reverberations from its demise were being felt around the country. Firefighters in Oxfordshire were put on standby to serve school dinners, while the RMT rail workers’ union said disruption to train cleaning services was “almost inevitable” because mobile cleaning crews who travel by van found that fuel cards issued by Carillion to pay for petrol no longer worked.

Workers building the £590m Midland Metropolitan hospital in Smethwick were told to go home as the site was locked.

West Midlands mayor and former John Lewis boss Andy Street said a new contractor would have to be found, adding that he has set up a regional taskforce to help staff and suppliers.

Liverpool mayor Joe Anderson said “solid contingency plans” were in place to make sure the £490m Royal Liverpool University hospital is not further delayed.

Small business experts warned Carillion’s suppliers could be driven under if they aren’t paid. Suzannah Nichol, chief executive of trade body Build UK, said she estimated Carillion owed money to between 25,000 and 30,000 businesses which could now struggle.

“Looking at previous cases where large contractors have collapsed, you typically see that around 17% or 18% of businesses who are creditors […] don’t make it through the next five years,” she warned.

Insolvency firm Mazars said it was already fielding calls from affected Carillion suppliers.

Major partners on key Carillion projects admitted they were bound to take a financial hit from picking up its share of projects.

Construction firm Balfour Beatty, which is working on the £550m Aberdeen bypass, said it expects the collapse to cost it £45m, with partner Galliford Try sharing costs that could reach £80m.

But Serco, which provides some of the same services as Carillion, saw its shares rise more than 7% on the demise of a major rival. Carillion’s engineering partner on HS2 work, Kier Group, said it would take over Carillion’s share of the rail project.

The Financial Reporting Council, the accountancy watchdog, said it had been “actively monitoring” the situation and would make a statement shortly. Auditor KPMG, which signed off on Carillion’s 2016 accounts, said it had conducted its duties “appropriately and responsibly”.

Follow Guardian Business on Twitter at @BusinessDesk, or sign up to the daily Business Today email here.