'Aggressive' cost-cutting by ministers means Carillion collapse 'could happen again', MPs warn

Posted On: 
9th July 2018

The Government's "aggressive" approach to driving down costs has piled risk on companies like the doomed outsourcing giant Carillion, a scathing report by MPs has warned.

The major construction firm was heavily reliant on Government contracts before it collapsed
PA Images

Carillion - which had a string of big government contracts - collapsed in January under, leading to more than 2,000 workers losing their jobs and emergency plans being put in place to protect public services.

But a new report from the cross-party Public Administration and Constitutional Affairs Committee says ministers have shown a "depressing inability” to learn from previous outsourcing mistakes, and warns that public confidence in the practice has been badly shaken by the firm's implosion.

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The group accuses the Government of putting cost-cutting above all else, forcing firms to take on excessive risk and "driving prices down to below the cost of the services they were asking firms to provide".

Their report says: "The Government has deliberately promoted an aggressive approach to risk transfer to the private sector – often even attempting to transfer risks that the government has completely failed to analyse or to understand.

"The Government needs to move quickly to improve public confidence in the competence of its commercial capabilities."

The group of MPs urge ministers to improve the transparency of private sector deals and ensure that outsourcing decisions are weighed up with realistic assessments of cost and risk transfer.

Launching the report, PACAC chair Sir Bernard Jenkin said: "It is staggering that the Government has attempted to push risks that it does not understand onto contractors and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated.

"The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

"Public trust requires that outsourcing better reflects public service values. The Government must use this moment as an opportunity to learn how to effectively manage its contracts and relationships with the market."

Labour's Shadow Minister for the Cabinet Office Jon Trickett seized on the findinds, saying the report showed the Conservatives' "relentless approach to outsourcing".

He added: "This damning report points the finger of blame directly at the Government, who didn't even bother to follow their own guidelines. They were ineffective, lax and reckless with taxpayers' money.

"Their ideological obsession with privatisation meant they failed to spot obvious tell tale signs indicating Carillion's weakness.

"One thing is clear: the Tories' reckless approach to outsourcing has failed and the public has paid the price. Labour in government will introduce a presumption in favour of in-house provision of public services."

The spokesperson for the Cabinet Office said:

"The government is committed to ensuring a healthy and diverse marketplace of companies bidding for government contracts, and we have recently announced a wide package of new measutes to further improve how we work with our vendors.

"This includes extending the requirements of the Social Value Act in central government to ensure all major procurements explicilty evaluates social value where appropriate, consulting on improvements to the prompt payment code, as weel as measures to make the outsourcing process more robust and teh results more transparent.

"We will respond formally to this report in due course."