Cash Flow Challenges in the Construction Industry

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Carillion PLC was a UK-based construction and facilities management company that

was poorly struck by a cash crunch and collapsed in January 2018. The management of cash

flows remained one of the major weaknesses that led the company astray, coupled with the fact

that the construction industry is unforgiving (Sanni-Anibire et al.,2022). Actions aggregated fund

flow problems as Carillion waited long to receive payments from contracts, bid for contracts at

what was low, borrowed lavishly, and over-expanded. Non-payment of claims due to the

significant work volumes that the company delivered to clients like the Royal Liverpool

University Hospital and Midland Metropolitan Hospital also affected the company's cash flows.

It served as a vicious cycle to Carillion's detriment, whereby they made thin profit margins

because of the practice of underbidding to win contracts. Moreover, the daily use of debts to fund

operations placed additional pressure on the financial side because of the substantial interest

costs. Consequently, its rapid expansion without proper financial planning stressed the

company's managerial resources.

To overcome these challenges, Carillion took the following managerial actions. They

tried to achieve measures of economies by downsizing employment and divesting non-strategic

businesses, but to no avail. Other strategies to borrow more money and prolong the loans'

repayment yielded little positive outcomes. The firm then endeavoured to get help from the

government, but help needed to be provided, aggravating the situation. Attempts made to

reorganize and re-negotiate should have been more timely than being half-hearted. Cash flow

management was Carillion's primary failure, which resulted in the company's collapse, impacting

thousands of employees, subcontractors, and the global economy ( Baibossynov et al., 2020).

The Carillion case clearly shows that the mechanisms for bidding the contracts, monitoring cash

regularly, managing debts, and mitigating risks, especially during the expansion of the operation

area, are crucial.

Reference

Sanni-Anibire, M. O., Mohamad Zin, R., & Olatunji, S. O. (2022). Causes of delay in the global

construction industry: a meta-analytical review. International Journal of Construction

Management, 22(8), 1395-1407.

Baibossynov, S. B., Nevmatulina, K. А., & Shakeyev, S. S. (2020). Ways of optimization and

cost reduction of the enterprise. Bulletin of the Karaganda university Economy series,

97(1), 6-15.