A report published yesterday by the Public Administration and Constitutional Affairs Committee claims Whitehall’s overriding priority for outsourcing is “spending as little money as possible”, while forcing contractors to take unacceptable levels of financial risk.
The report adds this has led to worse public services as companies have been sent a clear signal that cost, rather than quality of services, is the main priority.
Carillion collapsed in January with debts of more than £1.5 billion.
At its height, the construction giant directly employed more than 20,000 and had a strong record on health and safety.
In 2016, Carillion Services UK won an International Safety Award from the British Safety Council in recognition of its commitment to keeping its workers and workplaces healthy and safe. It was one of just 30 organisations to receive a distinction in the awards, scoring 59 out of a maximum of 60 points.
But during an inquiry into the collapse of Carillion, contractors told the committee that the Government was known to prioritise cost over all other factors in procurements, driving prices down to below the cost of the services they were asking firms to provide.
The report adds the Government was unable to provide significant evidence for the basic assertion behind outsourcing during its investigation and found examples where the process appeared “opaque”.
The Government even admitted to the Committee that the “entire [PFI] structure is to keep the debt of the balance sheet”.
The report concludes that the whole process by which the Government decides to outsource and awards contracts is also in desperate need of greater transparency.
A report published last month by the National Audit Office estimated the demise of Carillion would cost the taxpayer around £148 million.
“It is staggering that the Government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs,” said Committee Chair, Sir Bernard Jenkin.
“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 relationship with the market,” added Sir Bernard.
The report’s full conclusions and recommendations are available here.
