Carillion collapse: Cabinet Office wants better understanding of outsourcer finances

Written by Richard Johnstone on 6 November 2018 in News

Response to select committee provides an update on how government is responding to liquidation of major outsourcer

Photo: PA

The Cabinet Office has revealed it is developing plans to require suppliers to reveal more information about their financial health as part of the government changes following the collapse of Carillion.

In response to a Public Administration and Constitutional Affairs Select Committee report that demanded a host of improvements to government procurement, the central department set out a series of steps government is taking to boost its understanding of the risks associated with outsourcing contracts.

It acknowledged that “government needs to ensure that it has healthy markets and robust procurement strategies”, and revealed officials are developing strategies “which will afford government greater insight into the financial stability of suppliers and markets”.

This goes beyond previous reform plans set out by Cabinet Office minister David Lidington in June that were focused on increasing the range of suppliers. Carillion collapsed on 15 January after months of speculation that it was unable to service its debts, leading to the Cabinet Office having to put in place plans to maintain public services delivered by the firm. 

Details on the new checks will be published in due course, and are intended to establish better ‘right at the start’ processes for procurement that are better placed to take account of market conditions on a case by case basis.

“We will be reviewing what financial information we should seek and what processes we should undertake in order to assess suppliers’ financial health both at the time of procurement and on an ongoing basis,” the Cabinet Office stated.

“While such assessments will not provide complete assurance, our work will enable us to assess the level of risk we should accept, the extent to which we should rely on historical financial information as an indicator of future financial health, and whether it is appropriate to seek and rely on forecast information.”

Elsewhere the response revealed the Cabinet Office is also working with departments to agree three to five key performance indicators it could apply to major contracts in the government-wide database.

“Cabinet Office has already begun discussions with departments as to how they will select the relevant KPIs for the top 500 contracts, known as the ‘gold’ contracts, and how they will be reported,” it said. “At this stage it is not possible to say which those KPIs will be, although it is clear that, because each contract is for different services, the KPIs are likely to vary between contracts.”

The Government Commercial Function is also developing a new tool for departments to better understand and track information on contracts and suppliers both in their area and across government.

The response also revealed that the government has commenced a review of the Orange Book, the government’s official guidance on risk. This update will produce standards, principles and guidance that can be used alongside performance management data to inform effective decision-making.

The planned Cabinet Office playbook on outsourcing, which Lidington pledged would specify a methodology for simple and complex outsourcing and a set of standards that will apply across government, will be joined up with the revised Orange Book to provide further clarity on guidance to departments on risk transfer.

About the author

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

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