The Guardian: The failure of the outsourcing behemoth must be explained. Then we need a better way of managing public services

Carillion
Opinion
The Guardian view on Carillion: reaping the consequences of corporate greed

Editorial

The failure of the outsourcing behemoth must be explained. Then we need a better way of managing public services

Mon 15 Jan 2018 18.31 GMT
Last modified on Mon 15 Jan 2018 22.01 GMT

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The sun sets behind a construction crane showing the branding of British construction company Carillion photographed on a building site in central London

To get a sense of the impact of the failure of Carillion, you only have to look at how far its ripples are spreading. Uncertainty now hangs over Aberdeen’s £750m western bypass, Sunderland’s biggest ever regeneration project, the glamorous new hospital in Liverpool, and another in Smethwick, the £350m Midland Metropolitan hospital. The ripples reach thousands of homes where military families live which Carillion is contracted to manage, the trains they are contracted to clean, and the school dinners they are contracted to make. The tentacles of this giant construction and outsourcing company, valued at £2bn only the summer before last, reached into the nooks and crannies of every part of the UK’s public services. It was a kind of parasitic growth in Whitehall growing fat on the contracts that government fed to it. It must not now be allowed to nationalise its losses.
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It is bleak for Carillion employees, direct and indirect. David Lidington, the Cabinet Office minister, promises wages will be paid, but in the longer term jobs are in doubt; the pension fund is in deficit. Much-needed public investment will be delayed. Investors have lost everything: but what of Chris Grayling, the transport minister who awarded nearly £2bn of contracts, even after the company first issued profit warnings? Ministers insist the taxpayer is protected, but eyebrows were raised at the time at what looked less like a good deal than a bid to keep Carillion afloat. The government could have declared Carillion too risky to work with. It didn’t.

And what will be the penalty for the Carillion bosses, like chairman Philip Green, a man who once advised David Cameron on corporate responsibility, who has a job lined up at a challenger bank, or its former chief executive Richard Howson, who goes on picking up his £660,000 salary until October, more than a year after he was forced out?

But the even bigger question is about the future of the whole system of private finance. Austerity has eaten into the value of contracts, but there are still 700 in play. Well over half the Ministry of Justice budget is spent via the private sector, more than half of the Department for Transport, and nearly half – £20bn – of the defence budget. It accounts for a third of government spending, and it goes to just a handful of giant companies – Serco, Capita, G4S. When contracts fail, like the Sheffield to Rotherham train and tram project, three years late and five times over budget, or when contractors cheat, like G4S claiming for tagging ex-prisoners who had died, they fail spectacularly, yet there is no evidence of penalty or price to pay. After reforms five years ago, departments were supposed to seek out more, smaller bidders. But it is too easy for officials to deal with people they know. The legal and contractual demands of a successful bid are daunting for smaller companies; the door between Whitehall and lucrative jobs on contractors’ boards revolves smoothly.

The immediate steps are obvious: a full investigation into the liquidation (City regulators have questions too). But Carillion’s failure is much more than that. It is the collapse of an idea that has held for 30 years. Outsourcing public sector contracts wasn’t just a doctrinaire response to high levels of borrowing. It was also because Whitehall was not very good at it. That makes wholesale renationalisation, not least in a Whitehall stretched to breaking point by Brexit, extremely unlikely. This is a crisis that has been looming for years. There is no simple fix. But encouraging more, smaller businesses to secure contracts, better corporate behaviour and perhaps a single outsourcing regulator will all be part of an answer.
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Topics

    Carillion
    Opinion

    Public services policy
    G4S
    Capita
    Civil service
    Construction industry
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    ChipKennedy
    9m ago
    1 2

    PFI - A form of looting and corruption .

    The Employees work hard only to be betrayed by executive Greed and Malfeasance .
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    guykguard
    14m ago
    0 1

    Shortly after Carillion issued a profits warning in July 2017 and its share price tanked, the
    government concluded several contracts with the company, including one for a section of the HS2 railway valued at £1.3bn. May I ask anyone familiar with the details of these contracts whether this is true?
    May I also ask whether the provisions of the Public Contracts Regulations 2015 have been complied with. These are the EU public procurement directive transposed into UK law. Public authorities are required to verify that their contractors are financially sound.
    For the government to have awarded large contracts to a contractor after it had made public announcements on its deteriorating financial position is recklessly negligent. It may also be a breach of the Regulations and of the Directive.
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