Thousands of people will have been waking up this week worried about their jobs. Hundreds of thousands, if not more, will have been waking up worrying about their public services. The collapse of Carillion has repercussions across the whole of the country and our society.
It is quite right that serious questions are being asked about the failure of Carillion and the government’s wisdom in awarding contracts to a company that has issued profits warnings, is well known to be heavily short-sold by investors (markets reflect well all that is known about an asset), and was publically known to be in financial trouble. Indeed, the government’s response to these questions was that they were concerned, so awarded the most recent contracts based on three way partnerships: in the event of Carillion’s failure, two other contractors would pick up the contract. I asked a question of the minister whether the government had done their due diligence on the other two partners not that they could deliver a contract with 33% of the financial risk, but could do it in the event of Carillion’s failure and take 50% of the risk, or even 100%. I wasn’t impressed by the answer.
Contracting the private sector to deliver public sector work is not a bad thing to do. But to do it successfully and with the confidence of service users, the government must do its work properly. Awarding contracts to companies well known to be in trouble is simply not on.
The argument about PFI contracts will rage again – Carillion provides PFI delivery. In itself, financing a project – a hospital, a school, an army barracks – through PFI, where not just the cost of finance but the risk of managing it is transferred to the private sector, is a good idea. Indeed, whilst the current contracts look hideously expensive, it will not be until the 25-year term of the PFI contract is complete, where that long dated risk will be factored in, that we will know if they are worth it or not. But companies like Carillion have the negotiating upper hand. They do hundreds of these proposals, whilst an NHS trust just does one. The minister raised an interesting point. Contracts leading to Carillion’s financial problems are private deals, not those with the public sector. Does this evidence suggest the government is just really bad at negotiating deals with the private sector? I think we need to know more.