Avoiding Corporation Collapse, Research Paper Example

Jarvis was one Britain’s largest construction that had an history of 160 years of experience in construction with 200 employees. Jarvis was given the contract to maintenance the Network Rails and to provide construction and engineering support. In 2010, it was announced that banking lenders was withdrawing all financial support to the largest construction company in Britain. The fiscal problems of Jarvis were exposed in the British High Courts that exposed the poor operational and financial woes of Jarvis. The British High Court judge ruled that Jarvis took an aggressive approach to that lead to loss of income profits. This poor operational and financial way of doing business doomed years earlier by Paris Moayedi, chief executive who conducted business recklessly with over ambitious expansions. Jarvis became one of the biggest winners from New Labor’s private finance initiatives of the late 1990s. In 2000, was the first sign of trouble when PricewaterhouseCooper(PWC), a professional accounting business resigned from Jarvis over fees.

The Network Rail contracts should have included their own professional accounting company instead of allowing Jarvis to freely handle billions of dollars. The PWC would have been the first alarm for the Network Rail management to prevent any further loss of funds, lives and lost resources by Jarvis. Jarvis was growing too fast without securing the proper financial reserves that would protect the company’s ability to service and maintenance the rail contract. The management of the contract funds should have been handled by an outside party to ensure the construction contracts and its subcontracts advance payments were not putting Jarvis at risk. Jarvis was awarded too many PFI contracts allowing them use funds inappropriately trying to pay subcontractors on different projects. The Jarvis management was guilty of aggressive approach to the recognition of the income and profits on long-term contracts. This Jarvis aggressive approach in reality was the money mismanagement by Jarvis because the first sign of problems when Jarvis accounting team PricewaterhouseCooper resigned. Jarvis was using illegal and unethical accounting to show investors that the company was operating at a profit and all subcontracts were being paid.

Preventative Measures

The award committee should have preventive protocols in place that allows the oversight of the Network rail project to have more than one quality checks. The British government would be the first quality check and they should hire an independent company to ensure total quality checks were completed on time. The second preventive measure would the implementation of performance bonds and construction bonds that would cover the amount of any losses caused by Jarvis. They provided Jarvis the contract award without securing a performance bond at every stage of the process. The rail maintenance and constructions business is a very risky investment that requires performance bonds for the Jarvis contractors and subcontractors.

The third preventative measure would be making sure that a reputable professional accounting firm was hired with Network Rail interest as the priority. This ensures that a third-party make sure Jarvis was accountability for any financial issues or problems that possiblity would have prevented the Jarvis company from collapsing. In this case, in the future any subcontractor such as the PricewaterhouseCooper (PWC) accounting firm for Jarvis would be included in the performance bond that would acted as an insurance policy for Britain’s state rail system. The responsibility of issuing a third-party surety to all subcontracts would have prevented Jarvis for misappropriating the rail funds aggressively. The Jarvis company was able to divert subcontractor payments because they no longer had PricewaterhouseCooper(PWC) in place to ensure all vendors and subcontractors were paid.

Schedule Maintenance

One of the measures that could have been implemented was an independent maintenance subcontractor outside of Jarvis to maintenance the contract. This consulting firm would be hired by the Network Rail system. The impartial consultants would ensure the rail system primary problems would have been addresses while tracking any potential causes of excessive compression of the tracks from high temperatures. However, this does not absolve the Jarvis organization from implementing some type of maintenance track inspection along with engineering project managers to test the rail creep from high temperatures. The schedule maintenance would test the expansion or contraction or compression of the tracks that have been laid along with de-stressing. De-stressing rail maintenance will prevent the risk of future buckles that can cause trains to derail. The Jarvis management could have hired a rail consulting firm to handle this check or they could have purchase other products to track the potential derailing.

Breach of Contracts

The Network Rail has many opportunities to withdraw the contract from Jarvis because of breach of contract. In addition, the rail award committee should have included a solid maintenance contract clause that legally allows the cancellation of contract with judicial orders. There were unethical incidents, poor maintenance issues, lack of training, and misappropriation of the contract funding which was enough to nullify the agreement. The maintenance contract is the most important which Network Rail should have included contract damages that would have automatically prevent losses. In the future, the Network Rail could have prevented the contract damages by including clauses for damages for defective workmanship and lack of schedule maintenance that cause damages, and rail damages for failure to perform.

Early Warning Signs

The best example of early warning signs is the derailment of the London-Glasgow express at King’s Cross station and of a freight train at Aldwarke Junction, near Rotherham. Jarvis did not provide the quality track inspections to ensure the performance of the rail and uncovering any potential unstable track conditions. The poor management and aggressive management of the funds started 1990 when Paris Moayedi, engineer and Chief Executive, Jarvis doomed the future with over-ambitious expansion. There were many warning signs that could have preventive the number of financial and jobs losses such as the resigning of accounting firm PricewaterhouseCooper(PWC) in 2000. The professional accounting team reported that they stepped down as the financial auditor because Jarvis was not paying their fees.

The Network Rail and the Rail Award Committee should have included an ethical clause, performance clause and a human life clause that would have allowed early dismissal of Jarvis. In 2002, Jarvis was investigated for the Potters Bar crash in Hertfordshire that killed seven people. This was an example of a lack of maintenance because the train was derailed because a section of the track broke. In 2004, profit warnings were evident because Jarvis was heavily in debt and their debt restructuring activities that almost led to bankruptcy. The British High Courts agreed with the poor financial management of Jarvis by stating an aggressive and flawed approach to income and profits management for long term contracts.

Lack of Safety Measures

The number of accident clearly show that maintenance and safety measures were not implemented because they stretched their resources too far. The best example is the derailment of the London-Glasgow express at King’s Cross station and of a freight train at Aldwarke Junction, near Rotherham. Jarvis did not provide the quality track inspections to ensure the performance of the rail and uncovering any potential unstable track conditions. There was another incident that should have prompted all parties involved with the rail contract to cancel the contracts. The obvious warning sign of poor safety measures was resignation of the firm PricewaterhouseCooper(PWC) in 2000. This is always an early warning sign when Jarvis did not have any consulting firm or business entity balancing the books.

Preventative Measures

The preventative measures suggested by Steven Norris, Conservative Minister was to set award limits to ensure that one company could not get a large percentage of the rail contracts. Norris concluded the Jarvis overspending of the contract funds could have been avoided. The checks and balances should have been in place that would prevent Jarvis from bidding and winning so many local contracts including PFI contracts. In the future, the British award process needs to be revamped to ensure one company does not receive over 63% of the rail contracts. Jarvis was spreading their resources to thin while cutting back on quality that caused major accidents left subcontractors unpaid.

Conclusion

The Jarvis construction company collapse could have been prevented with strong binding performance and ethical clauses allowing the Network Rail to cancel the contract. The rail award committee should implement processes that ensure fiscal responsibility outside of Jarvis construction. The award committee should put measures in place that have independent oversight of the Network rail project. The British government should have implemented Network Rail quality and maintenance initiatives to ensure total quality checks were completed on time. The lesson that should be learned by Network Rail is to ensure long term safety measures that protect the entire rail project.