Carillion’s collapse shows why governments should try downsizing their contractors

The wide-ranging impact of losing a big provider underscores the advantages of giving smaller businesses a chance.

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Do you ever pause somewhere in the middle of the working day, between your third brainstorming session with marketing and your fifth interminable phone call with Brad from the personnel team in Chicago, and feel like your job has become so disparate, so scattered to the wind, you barely know what you do anymore?

If so, spare a thought for the outsourcing behemoth Carillion — which this week announced it is going into liquidation — and its minders in the British government. Created at the turn of the century when it split from the materials company Tarmac, the construction company swiftly bought up a string of other entities. Eventually it became the public sector contractor with a thousand faces. It built hospitals. It ran customer support services. It plonked down 32,000 school meals in front of kids across the country every day. The future of all these and more is now in flux.

There are many lessons to be learned from this fiasco, from improving how contracts are drafted and managed to, as many on the left in particular argue, reconsidering what tasks should be performed by the private rather than the public sector.

But one part of the solution, as former public accounts committee chair Margaret Hodge, West Midlands mayor Andy Street, the Scottish Building Federation and others have said this week, is spreading the burden of government work across a wider range of providers — particularly by making it easier for small and medium enterprises (SMEs) to win jobs.

When things are going well, governments love dealing with big businesses like Carillion. A range of disparate tasks can be brought together. Managing familiar relationships with a few experienced suits is less daunting than leaping between upstart new suppliers in a dozen sectors.

It’s no surprise that Carillion isn’t the only such leviathan. The security company G4S, for example, has vast amounts of government work in its in-tray. It runs five of England and Wales’s 14 private prisons and as recently as December signed with the DWP what it called “one of the largest integrated security contracts of its kind awarded in the UK.”

Britain isn’t alone in this either. We could look as far afield as Bridge International, an education provider in charge of over 400 schools across Africa and Asia.

But when it all goes wrong, government’s one simple solution becomes dozens of complex problems. Ministers have decided not, in the strict sense of the phrase, to “bail out” Carillion. But they have committed to supplying the money needed to run the public services it delivered.

“Wait and see,” Hodge told the BBC on Monday night, “I think there will be a massive cost to the taxpayer from what has happened today.”

So governments around the world — including our own — are trying to make their roster of suppliers more diverse. In Australia, for example, they’ve come up with a no-nonsense approach over their federal IT services, limiting the maximum size of a government IT contract to 100 million Australian dollars.

That’s accompanied by a target to increase the proportion of the IT budget spent with SMEs to about 38 per cent.

Elsewhere, the public sector is using this purchasing power not only to spread risk but to help meet its other goals. In Manchester, city authorities have pushed not only to buy small, but to buy local. In

2007 the city decided to move all its procurement activities into one department, focused in particular on SMEs within its boundaries. As we reported last year, about 50 per cent of this budget now goes to smaller business, and the proportion going to companies in the city has leapt by 20 per cent. The city says it has created 1,500 jobs.

Meanwhile, Toronto, Canada, is thinking about its private sector contracting as a way to push through social change. The city is looking to direct $30 million annually into companies led by people from minority communities as part of its overall push to drive down poverty.

And looking to new suppliers can be a way for governments to encourage innovation and nurture unusual businesses. The “Innovative Solutions Canada” programme was announced last year. The Canadian government advertises problems it has for which it can’t find an existing answer on the market.

Businesses suggest how they could help and the winning ones get the contract. The programme is modelled on America’s Small Business Innovation Research(SBIR) project. Successful products supplied there range from training equipment for explosives detection dogs to an ocean-powered fresh water generator.

A 2016 National Audit Office report acknowledged that “for many years, government has sought to harness the potential benefits of involving SMEs in the public sector marketplace,” noting that the government has a target in place to spend a third of its procurement budget on SMEs by 2020. But it added that barriers still exist, among them a lack of information on upcoming bids, “disproportionate” demands during the bidding process, and a low “departmental appetite for risk.” It also stressed that, since SMEs aren’t suitable for all contracts, the government should do more to work out where they could best be used.

So Carillion’s collapse should prompt ministers and officials to focus hard on this agenda. Most of all, a catastrophe like this should lead them to think twice about when to fall back on an old partner, and when to give new up-and-comers a try.

Josh Lowe is a writer for apolitical, a global platform for public servants.