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16 January 2018updated 11 Sep 2021 9:38am

Carillion issued 3 profit warnings. So why was it still getting government contracts?

The government should have been wary of Carillion as far back as July.

By rebecca Bailey

Carillion, one of the UK government’s biggest contractors, with public sector contracts that deliver services across numerous government departments including defence, transport health and education, has collapsed.

This is potentially catastrophic, not least for the provision of vital public services. It also risks the jobs of more than 20,000 UK employees, hundreds of subcontractors and supply chain businesses and the interests of those who rely on Carillion’s pension fund.

What is most alarming however, is that Carillion had issued three profit warnings over the last six months. Yet following these, the government awarded nearly £2bn worth of additional public sector contracts to Carillion.

Worse still, is that pursuant to the government’s “Strategic Risk Management Policy”, it is government policy to designate a company as “High Risk” where profit warnings and/or various other risk factors are uncovered. The policy further states that firstly, if a company is deemed “High Risk”, a Crown representative should be appointed to manage relationships between the ailing company and government. In addition to this, all government departments should be advised to ”reduce where possible” any additional work to be procured.

So how did this apply to Carillion? The first profit warning was issued in July 2017. A week later the government awarded Carillion the prestigious HS2 contract totalling £1.4bn and Hestia defence contracts totalling £158m.

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The second profit warning was issued in September 2017. Yet as of that point, no Crown representative had been appointed in line with government policy. Furthermore, in November, the government-owned Network Rail awarded Carillion the contract for the London to Corby electrification, worth £62m. The third profit warning was the same month.

Why did the government fail to act when not one, but three profit warnings, had been issued? And why did it continue to award expensive public sector contracts to a company that was clearly in trouble?

Despite only reacting at the eleventh hour, the government must now move quickly.

We have called repeatedly over recent days for Carillion’s public sector contracts to be brought back in-house where possible. Doing this will ensure stability, delivery of public services and to ensure employees, supply chain companies and pension fund members are protected.

But this crisis raises larger issues. The Conservatives’ approach to outsourcing and privatisation is clearly undermining our public services. Awarding so many vital contracts to one single company has exposed public services, jobs, supply chain businesses, pension funds and the British taxpayer to an enormous amount of risk.

Labour’s manifesto pledges to ensure that any company procuring government services complies with a range of standards, ranging from full payment of suppliers within 30 days to full trade union recognition.

Under these rules, Carillion would not have been awarded these contracts.

Carillion supplier payment policy ranges from payments in advance to 120 days from month end. It was one of the eight multinational building contractors which played a role into the insidious practice of blacklisting of union members in the construction industry.

The crisis at Carillion raises deep concerns about the future security of infrastructure and capital projects. This is why Labour has pledged to end the rip off of taxpayers by committing to sign no new Private Finance Initiative (PFI) deals, looking at bringing existing contracts back in-house and developing alternative public sector models for funding infrastructure.

It is clear therefore that a full investigation is now required. This should be not only into the conduct of the government over the Carillion crisis, but also the viability of the government’s approach to public procurement overall.

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