Carillion’s collapse exposes Tory indifference to those who need public services

by: Cllr Lisa Banes and Cllr Mark Jones on 11.02.18 | In: Comment
by: Cllr Lisa Banes and Cllr Mark Jones on: 11.02.18 in: Comment

Carillion issued its first profit warning on 10th July 2017. Yet it was awarded six further major government contracts, including HS2, in the months following without any meetings taking place between Carillion executives and ministers from the Cabinet Office, the Department for Transport, or the Ministry of Defense in the period from July-September 2017.

The catastrophic lack of oversight shown by the government follows a troubling pattern of incompetent leadership by Theresa May and her Ministers.

Supply chain affected

One of the problems with these major contracts is that,  although they involve large sums of money, the work is paid in stages, usually in arrears. It is extremely rare for the work to be paid in advance, and nor should it be. This does, however, mean that companies often have to pay out very large sums of money in advance, taking on staff and buying equipment.

For a large multinational company in good financial health, this isn’t generally a problem. However, this structuring of major contracts does preclude a small, perhaps more local, company from successfully bidding for major works on its own. This means that they are often left to bid as little more than a provider to large companies such as Carillion. Many employees at such companies will now face uncertainty also, as the demise of Carillion means their companies may have few other customers because of the economies of scale. The supply chain will be badly affected, though to what extent it is always hard to measure.

Greater transparency and accountability

We want to see greater transparency and accountability of companies that are awarded public contracts (and their many highly paid advisors) as well as an overhaul of the PFI system that currently means only a select few mega-companies have the capacity to bid. As these companies suck up more contracts, they multiply the level of risk they are exposed to. At the same time, they divide their capacity to ‘keep an eye on the ball’ of the many works they are undertaking.

As Tim Roache, General Secretary of the GMB, said this month “We need an urgent national debate on how best to reform the law to prevent city spivs from neglecting their duty to their workers. Carillion staff – as well as the public at large – now look certain to pay the price for the company’s recklessness.”

We would like to see worker and/or union representation on boards of companies awarded public sector contracts in order to improve accountability. When lengthy management chains are in place, as they were at Carillion, there is often a disconnect between those at the very top of companies and those delivering services. Many companies mitigate this through programmes of workplace shadowing, for example.

Staff involved with service delivery have a strong understanding of the requirements of contracts. Had they been involved at board level, they would certainly have recognised that each new contract awarded involved creating new layers of risk. Risk can carry great returns, but for a company already in financial trouble, many economists would suggest that it would have been more prudent to concentrate efforts on servicing the contracts already in place in order to generate returns first.

In this context, it is clear that Carillion’s failure was a failure of its most senior executive team.

Taking public works back in house

Labour policy is that we will review all major outsourced contracts at national government level. As a Labour-run authority, Sheffield City Council’s policy is to only allow PFI contracts where there is genuinely no other means of raising the money to carry out essential work. We have taken several outsourced contracts back in-house, including council housing repairs, HR and payroll work.

In the meantime, all eyes must be on the government’s next steps. We are calling for a full enquiry on how Carillion was allowed to continue to take an increasing role in public service delivery, with no oversight, following their first profit warning.

The government must also safeguard the work contracted out to Carillion and take all necessary steps to ensure this work is completed without disruption to those affected, including maintaining homes of armed service personnel, school meals provision, and the running of several prisons.

The government’s own failures in recognising the significance of oversight for these contracts shows the blatant disregard they have for those who need these services. This whole debacle has shown how desperately we need a new, forward-thinking, government to tackle these problems.

Cllr Lisa Banes and Cllr Mark Jones are both Labour members of Sheffield City Council.

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