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John Tizard: Carillion – a year on, and much still remains to be done

Wednesday January 16th, 2019

A year ago, the construction and outsourcing company Carillion collapsed, leaving unbuilt buildings and hospitals, public services (including school meals) undelivered, substantial job losses from the company and across its supply chain, and many small businesses bankrupt.  Plus the tax payer has had to find £150m to pay the costs of the company’s failure and reckless governance.

John Tizard

John Tizard

Although most of Carillion’s contracts were transferred or retendered to other suppliers, the public sector and, more significantly, the public experienced hardship, anxiety and costs.

Carillion was contracting to the public sector to build infrastructure on conventional works contracts but also through complex and expensive PFI contracts.

A new hospital building in Liverpool remains uncompleted yet the NHS is having to fund the cost of maintenance and caretaking of a building that is desperately needed to treat patients. This is scandalous.

Carillion was not acting in the public interest. Several reports have highlighted significant shortcomings both within the company at the highest level and within government and the wider public sector. The public sector allowed this behaviour. Key signals were missed. There was a lack of comprehensive data and intelligence on the extent of Carillion’s reach across the public sector and the latter’s collective exposure to the risk of failure. Thus, when it came, the collapse was ‘spectacular’.

The Cabinet Office has introduced measures to improve its handling and management of major outsourcing companies and their contracts. Of course, many of these contracts do not rest with central government but across local government, the police and NHS – and yet there is no central co-ordination or database.  It is clear that more needs to be done to improve capacity and competency if these contracts and contractors are to be managed in the public interest. Yes, it is encouraging that Ministers are committed to making improvements, but will they move fast enough, and will they address the more fundamental questions about the efficacy of outsourcing public services? I fear that they may not – though I would love to be proved wrong.

Towards the end of last year, another major outsourcing and construction company, Interserve, announced that it was experiencing serious financial difficulties. Fortunately, it has not collapsed but as with all such enterprises, there can be no guarantees. Other companies have been and are in commercial and financial difficulty. Yet the Government and others across the public sector continue to let outsourcing contracts.

There has been a measureable reduction in the level and extent of outsourcing of some services, especially in local government, with local authorities of all political persuasions deciding to in-source services which previously were contracted out – so there does seem to be an emerging trend here.

A year on from Carillion, I would have liked to have seen the Government do what it is doing to improve the capacity and competency of its central commercial team –only faster and with more ‘oomph’.  I would also have liked it to have put in place a few additional measures (and possibly regulations) to require all public sector bodies to:

  • set the default position as in-house publicly managed services
  • demonstrate publicly why they choose to outsource (if they do) and explain the public benefit and be accountable for so doing)
  • adopt a transparent strategic ‘make or buy’ decision-making process, which should include key stakeholders including service users, staff, trade unions and others
  • review all their existing contracts and undertake a ‘public interest’ evaluation of them with a view to renegotiating or terminating where this is demonstrably in the public interest
  • set contract terms which require transparency of: service and financial performance; company ownership; tax and remuneration policies; etc. and require that these issues are taken into account when contracting
  • ensure that protection for staff and their rights are always paramount when outsourcing is being considered
  • assess the holistic costs to the public sector of an outsourcing proposal and not simply the potential impact on a narrow service department’s ‘bottom line’

In addition, I would have liked the Government to have committed to establishing a database of all significant contracts, and for this to include some performance and other data/intelligence that would benefit procuring bodies across the public sector. There are signs of some small steps being taken but more is required, and the proactive involvement of local government, the NHS and others in the public sector is needed.

Above all, as the government claims that outsourcing still has a significant contribution to make, I would like it to have established an evidence-based enquiry into the consequences and impact of public service outsourcing, its contemporary efficacy and international best practice.

To announce such a set of policies and an enquiry with this remit would be a good way to mark the anniversary of the Carillion collapse. This was a tragic event and we should not let this and the resulting financial and human consequences be forgotten.

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