Calls for ‘serious reform’ to prevent Carillion-style collapse
The government regularly ignores its own outsourcing guidelines brought in to prevent a repeat of the Carillion collapse, according to a report by an influential Whitehall thinktank.
Several government departments have not updated internal policies on outsourcing to match the “outsourcing playbook” published after Carillion’s failure, meaning private companies were still being awarded contracts that were too risky for them to handle, the Institute for Government (IfG) said.
Departments are still too focused on securing the lowest cost for outsourcing contracts, at the expense of factors such as quality delivery, the report says.
Carillion was the second-largest construction and services company in the UK at the time of its collapse in January 2018. The IfG said it held 420 public contracts when it went under, from building hospitals to cleaning prisons and maintaining homes for the armed forces.
The company owed 30,000 suppliers £2bn, while more than 2,000 of its 18,000 staff were made redundant.
The government contributed to creating a “corporate monster” by creating “low-margin, high-risk” projects, the report says. It adds that the government also offloaded too much risk onto private-sector suppliers, a problem that has also plagued the HS2 railway project.
Tom Sasse, a senior researcher at IfG and author of the report, said: “Carillion was a wakeup call, with its collapse showing where a careless approach to outsourcing can lead.
“The government must implement serious reform if it is to secure services that are reliable, high-quality and value for money – and avoid the prospect of contractors collapsing in future.”
The report praised the government’s immediate handling of the crisis and said training offered by the Cabinet Office on procurement had been effective.
It also found that the cost to the taxpayer of letting Carillion collapse was about £62m, less than half of the £160m requested by the company’s executives who wanted a government bailout.
However, it said unidentified projects were still contravening the guidelines, including a large facilities management programme and multiple IT services, construction and consultancy contracts.
Among its other recommendations, the IfG said a Cabinet Office minister should be given direct responsibility for improving outsourcing, and extend training to other public bodies such as the NHS and local governments.
The Carillion collapse was also a key trigger for a slew of 13 reviews of business and the accounting sector, after MPs found that its auditors, KPMG, had signed off “increasingly fantastical figures” over 19 years in the role.
The IfGs report described the collapse as a “stark illustration of a rotten corporate culture”, including taking big, debt-fuelled risks and using aggressive accounting to hide its problems.
“That the company was able to behave so recklessly for so long demonstrated that the system of checks and balances was wholly inadequate,” the report said.
A Cabinet Office spokesperson said: “Through our outsourcing playbook we have rewritten the rules for how the government works with suppliers to deliver public services.
“We have made progress but there is more to do and we are working with departments to deliver training, targeted support and strengthened approval processes.”
Labour said the report showed the government had failed to tackle the “outsourcing rip-off”, arguing that private companies were opaque and unaccountable.
Jon Trickett MP, the shadow minister for the Cabinet Office, said: “[The government’s] reforms have barely scratched the surface of a deeply dysfunctional system, as many contractors remain unstable and too many outsourced public services suffer inflated costs, delays and delivery problems.”
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