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John Tizard: Will ‘living wills’ add life to public outsourcing – or create complacency?

Monday November 26th, 2018

The Government has announced that in the aftermath of the collapse of Carillion outsourcing companies will have to draw up ‘living wills’ saying what would happen if they go bust or fail.

John Tizard

John Tizard

It is proposed that these living wills would describe contingency plans explaining how public services could continue if a firm collapsed, enabling them to be transferred to a new supplier or taken in-house.

This follows the mismanagement of the collapse of Carillion by the Government and the wider public sector. In part this mismanagement arose from a lack of basic information on the company’s reach across the public sector, its contracts and the public sector’s exposure. Other contributing factors included a lack of ability in the Cabinet Office to read the runes when the company issued profit warnings, fell behind with payments to suppliers and gave other indications that there were problems, and the failure of the company for some time prior to its ultimate collapse to share the right information and forecasts with the Government.

Given that public services have to continue if and when companies collapse or seriously fail to deliver services in a proper manner, there is merit in exploring means of mitigating the risks for the public sector.

Living wills may be part of such mitigation. However, they neither address the systematic problems and risks inherent in public service outsourcing nor the more fundamental questions concerning the efficacy of such outsourcing.

I believe that the proposed introduction of living wills raises many questions, including who triggers them and when?

These are big and serious questions as timing could be critical. Does the public sector client trigger these living wills and if so on what basis – will it have access to the right information in a timely manner; and if it does will it have the competence to decide when to act? If it is the company alone, what are the incentives and sanctions? Could it be a joint decision; and if so how would it be executed?

Is a living will to be invoked when a company underperforms on one or more contracts and/or when it is in terminal health?

Living wills should surely be invoked before companies collapse, not afterwards; but could triggering a living will accelerate the death of a company? And then if a firm does go bust who administers the living will – there is likely to be a gap in and disruption to services.

A further question concerns a company with many complex contracts: does the living will apply to all of them (and there may be many public sector clients)?

The concept of a living will is predicated on another company or in some cases the public sector taking the service over. In these circumstances how does the public sector client assure itself that the living will inheritor has the capacity, capability and correct ethos to ensure continuity of service? They might possess these things when the living will is written, and presumably good due diligence would have been undertaken (?), but changes in circumstances may have occurred since. In such a situation we can only speculate what might happen.

How would a company be held to account, especially when it has collapsed and possibly is in administration? Would board directors be held legally to account?

If a company has many living wills surely this would be reflected in contract fees for all its public contracts? Would companies be able to insure against the possibility of being faced with having to trigger a living will?

There is also a possible risk that the introduction of living wills could lead to lazy contract management on the basis that the public sector is seemingly protected. They could be used to attempt to see off challenges to the policy of outsourcing on the basis that risks have been reduced.

Recent experience and report after report have identified poor procurement, contracting and contract management by the public sector. This has been particularly the case when part of these processes should have included evaluating companies’ commercial performance and governance. If there are to be effective living wills the public sector will require to significantly up its contracting and commercial skills.

The promotion of living wills may be a helpful move but they will not be a panacea. They most certainly will not reduce all the risks of public service outsourcing; and until there is greater clarity on the questions identified in this piece they may themselves add to these risks and create a false sense of security.

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