Carillion had no Whitehall commercial rep for months despite profit warning
Public administration select committee announces new inquiry into risks of outsourcing following collapse of contractor Carillion
Civil service chief executive John Manzoni spoke in a select committee hearing yesterday. Credit: Parliament TV
Whitehall’s crown commercial representative for Carillion “rotated off” the now-collapsed government contractor last summer, the civil service chief executive John Manzoni admitted yesterday.
The firm, which has around 450 contracts with government, went into liquidation on Monday after it issued two profit warnings, the first of which was in July last year. Government has been under fire for continuing to award contracts to Carillion despite the warnings.
Manzoni, who also serves as Cabinet Office permanent secretary, said Carillion had not been monitored by a crown rep during the months in which it was struggling under £900m of debt. But he insisted that the bulk of supplier engagement work was done by a full time team dedicated to Carillion, headed by a more junior strategic partnership manager.
The former BP executive was giving evidence to Commons’ Public Administration and Constitutional Affairs Committee yesterday for its inquiry on civil service effectiveness. PACAC has just announced a separate inquiry into the risks of outsourcing the delivery of public services and lessons that can be learned from Carillion’s demise.
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Manzoni pointed out that the civil service had already shored itself up against such risks, having implemented a functional structure across government with a commercial capability to oversee the relationship between the public and private sector. Over the past couple of years, it has identified the 30 to 35 biggest government suppliers, and has introduced “dedicated teams focused on those”, he said.
“In this case, had we had this situation a couple of years ago I think the outcome would have been significantly different and probably significantly worse for the public sector than it is today,” said Manzoni.
The civil service has 22 crown commercial representatives that act as a focal point for particular groups of suppliers working with the public sector, and have responsibility to assess whether companies are high risk. Carillion’s crown representative was listed on GOV.UK as “TBC”.
They are senior part-time strategic roles, Manzoni explained. He insisted that the “horsepower” work came from the full-time dedicated teams working underneath those representatives. Sir Jeremy Heywood, the cabinet secretary and head of the civil service, added that weeks of contingency planning for the “worst case scenario” had taken place after the issuing of profit warnings.
On the costs to the taxpayer of Carillion’s insolvency, Manzoni said that the bulk of the contracts that were managed by the firm are profitable businesses and he insisted he was hopeful that the majority would be taken on by new suppliers at limited additional cost.
An official receiver has been appointed to liquidate the company and investigate what went wrong, and there will be some administrative cost burden associated with the team working beneath him, he added. The Times has reported that the major loan expected to be handed to Carillion’s official receiver will likely run into the "hundreds of millions" of pounds, although this could be recouped from the sale of company assets after the liquidation.
Heywood echoed Manzoni’s praise of Whitehall’s recently bolstered commercial function, and said that the sagas involving Serco and G4S had showed him how important it was to prioritise improving the quality of the civil service commercial profession.
He said Whitehall had a much better grip at the centre of government contracts, and had succeeded in doing contingency planning in this case that would not have been possible five to 10 years ago.
Bernard Jenkin, the Conservative chair of PACAC, said of his committee’s new inquiry: “Seeing what has happened to Carillion and given the concentration of outsourced public sector contracts into such a small number of large companies, we need to ask if the rules on oversight and accountability of public services need to change.”
Following the firm’s collapse yesterday, civil service trade unions also called for the government to review its outsourcing policies.
The Public and Commercial Services union, which includes Carillion workers for various government departments among its members, called on the outsourced contracts to be taken by inhouse by government, and for ministers to guarantee all the workers their full employment rights.
PCS general secretary Mark Serwotka said: “We call on the government to issue a moratorium on all future and planned outsourcing, to bring all Carillion’s public sector contracts and workers back ‘in house’ and to urgently consider a public sector model to take on delivery of these services.”
Prospect deputy general secretary Garry Graham added that Carillion’s collapse showed that the chickens have come home to roost from the government’s outsourcing policy. “Whilst the services have been outsourced, the risk has not and the public sector and tax payer is left to pick up the pieces,” he said.
“Whilst we have received loose reassurances from the Cabinet Office relating to the continued provision of ‘all public sector services following the insolvency of Carillion’, we are seeking guarantees on this and clarification as to whether this statement covers our members in non-frontline services,” he said.
“Carillion’s collapse demonstrates the fragility of the outsourcing model for the delivery of what are essential public services and key parts of our national infrastructure. The staff and services should be brought back in house pending a fundamental review of the business model used."
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