Key government contractor Interserve sold after entering administration
Cabinet Office welcomes sale of firm in pre-pack administration deal that keeps public services operating
Outsourcing firm Interserve, which is a major supplier to a number of government departments, has been taken over by its creditors after entering administration at the weekend.
The firm, which has facilities management contracts across departments including the Department for Work and Pensions, the Department for Transport and the Ministry of Justice, had been in talks with investors since concerns were raised over its financial health in January 2018, days after the collapse of fellow outsourcer Carillion.
However, shareholders rejected a proposed deal with investors to reduce its £700m debt burden, leading the company to enter administration. It was taken over by creditors including banks RBS and HSBC, and investors Emerald Asset Management and Davidson Kempner Capital.
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- One-third of government spending is with outsourcers – and four departments spend over 50%
Interserve employs around 45,000 staff in the UK and is one of the 30 major suppliers to government the Cabinet Office deems to be of strategic importance. A report by the Institute for Government last year revealed it was the second most significant strategic supplier to four departments – Cabinet Office, Department for Education, Department for Environment, Food and Rural Affairs, and Ministry of Housing, Communities and Local Government – in 2016/17, based on published procurement spend. It was also the fourth biggest supplier, in percentage terms, to the Foreign Office and Ministry of Defence.
In a formal announcement, Interserve said the move, which will reduce its debt burden, “will restore the group’s balance sheet and provide additional liquidity”.
“All companies in the group other than the parent company will remain solvent, providing continuity of service for customers and suppliers. The alternative transaction involves the equitisation of approximately £485m of existing debt and the injection of £110m of new money into the group.”
The government is proposing a range of reforms to the way it handles outsourcing.
Cabinet Office minister David Lidington has set out reform plans in two tranches. He first intends to change procurement rules to include “social value” in 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. The second round includes plans to further increase transparency through 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.
Responding to the ownership switch, the Cabinet Office said: "We welcome this announcement. It brings the company the stability required for it to compete for future business and continue to deliver good value public services for the taxpayer."
However, a statement from the GMB trade union highlighted Interserve had received £660m of public sector contracts since first issuing a profit warning in March 2016, which national secretary Rehana Azam said the contract awards were “the height of irresponsibility”,
According to figures provided by Tussell, a database od public service contracts, Interserve has at least 50 live contracts with a total lifetime value of £2.1bn with the UK public sector, the majority of which are with central government departments. The company received contracts worth £432m in 2017, and £233m last year.
The biggest contract in 2018 was a £66m facilities management deal with the Foreign Office, awarded last July.
The data showed “ministers have still not taken on board the lessons from the collapse of Carillion,” Azam said.
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