Transport secretary Chris Grayling claims it would have been illegal to exclude Carillion from contracts

Transport Secretary Chris Grayling has defended the government's role in awarding Carillion huge public contracts as its profits plummeted, saying it had "no legal reason" to exclude the firm.

The government has come under pressure to explain why the construction giant, which entered compulsory liquidation on Monday, was awarded contracts for the HS2 rail scheme despite posting a series of warnings about its dire financial state.

ITV News Political Editor Robert Peston said lawyers he had spoken to are "adamant" there was a "totally legal basis" for the government to intervene.

But Mr Grayling said in "all cases the right due diligence was done" and claimed there was "no direct contract" with Carillion as it bid for projects as a leading part of a consortium.

He also claimed the firm's demise would have "no impact" on the HS2 project.

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"There's no legal basis for excluding a consortium made up of companies that have done nothing wrong," he said.

The transport secretary said he did not regret not intervening in a crisis that saw the firm issue three profit warnings as its share value plummeted by 90% in six months.

"It's been clear for sometime that Carillion's had issues, but many construction firms have had issues over the years," he said.

"It's not for government and it's not for HS2 to exclude firms, possibly pushing them under because of the impact on their business.

"(It's) arguably illegal to do so, because there's no legal reason to exclude them.

"What we just have to do is make sure that the contract is deliverable - that there's no financial cost, that we make sure the staff are covered.

"And in all cases the right due diligence was done. There will be no impact of this tragic loss of Carillion on the HS2 contract."