Carillion one year on: how has the government changed outsourcing?

Written by Richard Johnstone on 15 January 2019 in Analysis
Analysis

Twelve months on from the collapse of one of the government’s biggest contractors, Richard Johnstone looks at how the Cabinet Office has responded and reformed its approach to outsourcing

Photo: PA

After a near-endless focus on Brexit in 2018, it is easy to forget that the biggest issue facing Whitehall this time one year ago had nothing to do with Brussels, the backstop or indeed Boris.

Last January, most of government was consumed with the collapse of outsourcing giant Carillion, with the Cabinet Office leading a cross-government response to ensure services and construction projects that the firm ran did not grind to a halt. Then began the process of trying to work out how to stop it happening again.

One year on, by common consent, the government succeeded in its initial aim of keeping the lights on.


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“When Carillion went into liquidation [on 15 January 2018], it represented a huge risk to some of our core public services,” Cabinet Office minister David Lidington reflected in a speech last June.

“But the government’s response, grounded in good contingency planning, ensured that the delivery of public services continued smoothly, with disruption kept to a minimum. The hospitals were cleaned; the school meals were cooked and served; and the railways continued to be built and repaired.”

The second part of the response – to reform outsourcing and avoid such fiascos in the future – is still ongoing, and government has been trying to formulate its policy response at a time when other outsourcing companies – most notably Interserve and Capita – have run into their own financial problems.

Lidington set out his plans in two tranches, with the aim to improve competition and boost available data on outsourcers.

In June, he said that the government would change its procurement rules to include “social value” in all assessments of providers for government work, and to require the publication of key performance indicators – such as response rates, on-time delivery and customer feedback – for critical contracts.

His speech also set out plans to increase the range of suppliers, saying “it is clear that competition for contracts has often favoured large suppliers, with too narrow a focus on value for money”.

“We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised,” Lidington said. “And that means government doing more to create and nurture vibrant, healthy, innovative, competitive and diverse marketplaces of suppliers. A marketplace that includes and encourages small businesses, mutuals, charities, co-operatives and social enterprises.”

Ministers and officials continued to develop these ideas throughout the year, pledging to create strategies “which will afford government greater insight into the financial stability of suppliers and markets”, as well as working with departments to agree between three and five key performance indicators it could apply to major contracts in the government-wide database.

Then in November Lidington announced plans to further increase transparency, including the development of so-called living wills for major outsourcing contracts that set out how services could be managed in the event of a corporate failure.

Speaking at an Institute for Government event in December, Gareth Rhys Williams, the government’s chief commercial officer, revealed that some reform plans had been developed by civil servants working with the outsourcing industry.

“We have been running an outsourcing study group with our vendor base [of suppliers] in the post-Carillion phase, and that has come up with a number of really good recommendations that I think will make our contracting group better, more robust and more resilient,” he said.

Among the ideas that have come out the group, according to Rhys Williams, are moves for government departments to publish their own procurement pipelines, which would be an expansion of existing data for construction projects. Another is a commitment by central government to do an internal ‘make or buy’ analysis – to decide whether things can be best done in house before going ahead with outsourcing – and a new assumption that departments run initial pilots before all first-generation outsourcing.

However, Rhys Williams said the biggest shift could come from the KPIs, which are to be applied across government’s biggest contracts. The Cabinet Office is in discussions with departments as to how they will select the relevant KPIs for the top 500 contracts, although it has not yet said what these would be.

“We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised”

David Lidington

Industry observers have broadly welcomed the government moves.

Ian Makgill, founder of the Spend Network website that uses data on spending and contracting to reveal trends in public service outsourcing, told the IfG event that transparency was key to trying to tackle problems with providers in the future, adding there is a “tendency to imagine that we can get rid of all risk and we can prevent all of this from ever happening [again] and actually we can’t”.

“What transparency can do is manage that risk, fill some of those gaps and encourage competitive markets.”

John Tizard, a former senior executive at Capita and ex-Labour leader of Bedfordshire County Council, told Civil Service World that the reforms announced so far represented a recognition “that the outsourcing market as we had known it is changing”.

Tizard published a review of outsourcing a week after Carillion closed. The Out of Contract report, authored with former Audit Commission communications director David Walker for the left-leaning Smith Institute think tank, called on government to compile a Domesday Book listing all significant contracts and undertake a root-and-branch review of outsourcing to find out what has worked – and what has not.

Reflecting on the year of subsequent policy announcements, Tizard said “some of the actions and the statements that have come from the Cabinet Office, not least from David Lidington, indicate that they recognise there has to be significant change in behaviours and performance if outsourcing is to continue”.

However, he questioned whether the response would go far enough. For example, he highlighted that the proposed living wills are reactive rather than preventive of failure.

“I think there are lots of questions about it,” Tizard told CSW. “Who invokes the living will and at what stage? Who would have known it was necessary to invoke the clauses of a living will in respect of Carillion when Carillion was telling everybody, including the Cabinet Office, that they were healthy and they would pull through right up to the moment that they fell over?

“I don’t think it is a silver bullet, and even if it were, it is a silver bullet that you fire when a company has collapsed and there is potential for real, serious disruption and costs for the public sector and for service users, and in the case of Carillion, for a massive supply chain as well.”

Lidington has acknowledged that when Carillion collapsed “we did not have the benefit of key organisational information that could have smoothed the management of the liquidation.”

He has pledged this will change once the government reforms are complete.

“By ensuring contingency plans can be quickly put in place in the very rare event of supplier failure, we will be better prepared to maintain continuity of critical public services,” he said.

Civil Service World's parent company Dods is holding an event reviewing the fallout from the Carillion collapse. After Carillion: the future of public sector insourcing and outsourcing, will be held on 14 March in London. CSW readers save 20% on a place by using promo code ‘CSWMARCH2019’

About the author

Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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