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OTTAWA — The looming bankruptcy of U.K.-based Carillion PLC could force some Canadian joint-venture partners to pick up the financial slack at various major construction projects, but analysts say the overall impact of the liquidation on Canada will be modest.
Carillion, one of the U.K.’s largest construction firms, filed for liquidation on Monday. The company employs around 50,000 people worldwide, including 6,000 in Canada.
The company’s financial woes bring into question the construction of several major construction projects in Canada, including roadbuilding in Alberta and Ontario and the construction of hospitals and mental health facilities in Ontario, Saskatchewan, the Northwest Territories and Nunavut. It also has several major long-term maintenance contracts for highways and medical facilities across Canada.
One joint-venture partner with Carillion, Calgary-based Graham Construction, is planning to boost its stake in the construction and maintenance of a psychiatric facility in North Battleford, Sask., that is expected to near completion this summer.
“We’ll all just step up and fill the gap,” said Grant Beck, the president and CEO of Graham. “There was a little bit of anxiety and disruption in the initial stages, but really nothing that would affect the project in the long term,” he said.
Carillion was responsible for 50 per cent of the $407-million contract, including 20 per cent of the construction costs and 80 per cent of maintenance costs, which would be spread over 30 years. Graham covered the other 80 per cent and 20 per cent, respectively.
Another major project in question is the Stanton Territorial Hospital in the Northwest Territories, being built by a consortium including Carillion, HOCHTIEF PPP Solutions North America Inc. and Bird Capital Ltd.
However, the other partners in that project are also expected to boost their equity stake in the project, analysts said. The total construction and 30-year maintenance project for the facility is $1.1 billion.
“It will have a very limited impact,” said Maxim Sytchev, an analyst at National Bank Financial.
The government of the Northwest Territories said in a written statement that there would be “no impact on construction currently underway,” adding it expects the facility to open on schedule in mid-2019.
Senior management at Bird Capital couldn’t be reached for comment.
Some political representatives in Ontario, where many of Carillion’s long-term contracts are located, were critical of Premier Kathleen Wynne’s decision to outsource road clearing and some medical support services to a private company, which will now have to be replaced.
Carillion provides support services at Brampton Civic Hospital, Sault Area Hospital, Oakville Trafalgar Memorial Hospital, Etobicoke General Hospital and the Centre for Addiction and Mental Health in Toronto, and Royal Ottawa Mental Health Centre, as well as maintenance services on Highway 407.
“This kind of privatization always costs more, and is often riddled with the problems from cost overruns to shoddy construction and contract disputes,” Ontario NDP leader Andrea Horwath said in a statement. “On top of that, we’ve already paid billions for these services, and now the corporation could fold and walk away.”
However, analysts said the number of contracts in question remains relatively small, and could easily be replaced by other contractors.
“It’s not as if 43,000 people and these long-term projects disappear overnight,” said Sytchev.
The financial breakdown of Carillion came rapidly. The company’s $2.6-billion debt load and pension deficit began to weigh the company down after it posted three profit warnings in quick succession last year — mostly tied to four key contracts that had soured on the company.
Soon after, the company let go its CEO and suspended its dividend. On Monday, it filed for liquidation after lenders refused to keep the company afloat.
“It’s been coming for some time — it’s unfortunate because I think they were a pretty good firm,” said Beck, of Graham Construction.
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