MPs raise EY’s ‘apparent conflict of interest’ over HS2 and Carillion
Big Four firm was advising rail project on health of contractor for which it also worked
The Big Four accountancy firm EY was advising the UK’s HS2 high speed rail line on the health of Carillion while simultaneously giving financial advice to the contractor itself, an investigation into the collapsed company has found.
Parliament’s pensions and work and business committees, which have been jointly investigating Carillon’s collapse in January, have written to Chris Grayling, the transport secretary, to ask if he was aware of the arrangement and question him about the “apparent conflict of interest”.
In July last year, Carillion was announced as one of 11 companies to secure the first significant HS2 building work, even after its shares had collapsed because of a profit warning.
The HS2 contract, worth about £450m to Carillion, was awarded to a consortium involving Britain’s Kier and Eiffage of France, which took Carillion’s part of the work after it went into liquidation.
In the letter, the MPs ask whether the EY HS2 contract was competitively tendered and what steps were taken to mitigate the apparent conflict.
According to the letter, which was published on Monday, EY billed Carillion more than £13m for restructuring work between July 2017 and January 2018. Of this, £10.8m was paid, including £2.5m on the last working day before the company collapsed. Lee Watson, an EY partner, was seconded to the Carillion board of directors as chief transformation officer in September 2017.
The DfT said on Monday night: “We have received the letter and will respond in due course.”
Atul Shah, professor of accountancy at the University of Suffolk, said he viewed it as a “serious conflict of interest”. “EY knew Carillion was in financial difficulty so it should have immediately raised concerns with government,” he said.
EY declined to comment.
Pressure is growing to break up the four firms that dominate the audit market — KPMG, Deloitte, EY and PwC — following high-profile corporate collapses that have called into question the quality of their work as both auditors and consultants for the UK’s largest companies.
Last week a parliamentary report by the committees investigating Carillion’s collapse accused them of operating a “cosy club incapable of providing the degree of independent challenge needed”.
HS2 has previously faced conflict of interest allegations.
US engineering group CH2M in March last year handed back a £170m contract to design the second phase of HS2 after Mace, a losing rival in the tender, threatened legal action. Mace pointed out that Mark Thurston, HS2’s new chief executive, was a former CH2M employee — as was his predecessor, Roy Hill, who had filled the role on a temporary basis.
Another accountancy firm KPMG, which was external auditor to Carillion for 19 years, has appeared before MPs to defend a report that claimed HS2 could boost the UK economy by £15bn a year. Transport economists told MPs that they believed a key calculation behind the figure was “essentially made up”.
Carillion, which employed about 19,000 people in the UK, collapsed in January leaving employees, subcontractors and creditors nursing heavy losses and forcing the government to step in to deliver key services such as school meals and hospital cleaning.