Carillion collapse: Role of these companies in providing vital services must now be reviewed

Carillion is by no means the first company reliant on Government outsourcing to have badly stumbled. It's just the worst  

James Moore
Chief Business Commentator
Monday 15 January 2018 14:00
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What is the Carillion fiasco? Economics Editor Ben Chu explains

“Ministers should be hanging their heads in shame today – it’s a complete shambles,” said Tim Roache, general secretary of the GMB union, in the wake of the crisis sparked by the collapse of contractor Carillion.

He’s absolutely right. I delved into the corporate scandal. Here’s my first take on the political fall out.

Back in July I raised the issue of the award of a juicy HS2 contract, perhaps the most prestigious infrastructure project planned by the Government, to Carillion, a matter of days after it had posted an ugly looking profit warning.

Transport Secretary Chris Grayling put £1.4bn in taxpayers’ money in the hands of a joint venture involving a business that had parted with its chief executive, suspended its dividend and announced a “thorough review” of the business and its capital structure.

Even at the time the decision was scarcely credible. It looks even worse now with the company in liquidation and creating a mess that goes way, way, beyond HS2. Thousands of jobs are at risk, a massively underfunded pension fund requires a bail out, and a fog of uncertainty hangs over a bewildering array of state services.

What that contract, in particular, does, however, is throw a disturbing spotlight on the Government’s indulgence of these businesses.

Where they haven’t found themselves plunging into financial problems (eg Serco, Capita, and especially now Carillion) they have found themselves immersed in scandal over the operation of their contracts (hello G4S, but there are plenty of others). Some of them have both on the charge sheets.

Yet the work keeps on rolling in for them. The same names keep on popping up when it comes to getting Government contracts to provide often vital state services. The subsequent scandals keep on giving people like me things to write about, and people like Mr Roache things to get understandably angry about.

Back to that HS2 contract. Did ministers, or their civil servants, ask questions about Carillion’s financial situation before the award of the contract? Did they consider the risks?

Or did they just decide that these businesses have usually found a way to trade through their difficulties and that, in the case of Carillon, it was just Buggins’ turn next?

These are questions that are going to require answers.

But while the adjective “hapless” is now being applied to Mr Grayling, and with some justification, he’s far from alone in having presided over a scandal involving a Carillion.

It has for years been an article of faith in Britain that private is inevitably better than public, and that the former does things cheaper too.

There are any number of examples of where that is not the case, at least when it comes to “better”.

Carillion should nail the lie about private contractors offering better value to the taxpayer.

This scandal has the potential to quickly get very expensive, even with the Government having decided not to bail the thing out.

With the business being in liquidation, public funds will be required to keep the services it provided running until another one of the bunch I mentioned gets handed responsibility for the work, for yet more money.

All this underlines just how broken the system is, and exposes the apparent lack of rigour applied to the doling out of contract after contract.

Then there is the madness of handing the work of building railways, overseeing patient transport, cooking school meals, running public private partnerships in health and education, and more besides to the same company.

The phrase “jack of all trades, master of none” was made for the businesses like Carillion.

In one respect its collapse might do us a favour. It might finally lead to an important question being asked about outsourcing: Is this really a good idea?

The National Audit Office raised alarm bells about these companies becoming “too big to fail” years ago. Nobody listened. Just before the award of that HS2 contract I wondered whether it would take “a truly dreadful crisis”, to force the Government to seriously review the situation successive administrations have allowed to develop.

Now we have that crisis it must happen, and as a matter of urgency.

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