The collapse of construction giant Carillion in Britain last month has raised many, many questions about the future of the private finance initiatives in this country.
The firm is in liquidation, it collapsed on January 15 when banks refused to lend it any more money. But with this collapse not only has the future of its more than 40,000 employees (around 20,000 of them in Britain) been thrown into jeopardy, also uncertain is the future of the practice of outsourcing public projects to private firms.
Carillion had many such public sector contracts, and its collapse has serious repercussions for a number of large government projects, particularly in the health and transport sectors. The firm was building the new £335 million hospital in Merseyside for Liverpool University, and it is now unclear when and if this 646 bed hospital will be completed. The firm also had big transport contracts, notably major rail projects like Crossrail and HS2.
For some reason the firm’s £1.7 billion public/partnership contracts also included school lunches, and cleaning and catering at local schools and NHS hospitals. With its collapse, suddenly even the provision of school lunches or hospital cleaning had to be dealt with on an emergency basis.
But many questions are now being asked about why Carillion was able to get these projects, and why those responsible for public funds and budgets allowed this to happen. The transport secretary (Chris Grayling) particularly is facing many questions — people are demanding why his department continued to award contracts to Carillion even after it was clear that it was running into difficulties and had even issued a profit warning (last July).
The firm also had contracts in the Defence sector, notably for staffing and supplying the UK sites where Service personnel and their families live. One report (by RUSI, the Royal United Service Institute) points out that mismanagement of this area and the current crisis in this caused by Carillion’s collapse will have an adverse effect on service personnel as “the collapse of Carillion is a metaphor for their poor living conditions and a practical reminder of how low their welfare appears within management priorities”.
Apart from the impact on all those affected by disruption of services, thousands of jobs will be impacted directly and several thousand indirectly. The smaller firms supplying the construction giant have been left holding a bill that nobody is going to pay. And at the heart of the whole matter is the simple lack of accountability that the private firm seems to enjoy — the public will suffer yet many who were at Carillion’s helm when it was steered into financial storms, will get off with little more than a reprimand along with their handsome salary and bonus payouts.
The ongoing Carillion postmortem has revealed that there are huge problems with the current model of government and industry partnerships: apparently many local councils are struggling with craftily drafted contracts with private firms who reap absurd profits even when failing to deliver. And there are now reports that some rail routes may be returned to the public sector after private firms breached their (multi-million) contracts. The private sector seems to be making unjustifiable profits supplying to the public sector — which is constrained by the fine print of mala fide contracts or the oversight of its own experts: a case in point was the revelation that some pharmaceutical firms were supplying drugs to the NHS at up to four or five times their market price. This is both unjust and unethical.
Yet, so far, the British public has not reacted with the rage you’d think might be an appropriate response. Indeed, I was astonished to see that a Carillion sign on the train platform at London’s Paddington station remained strangely untouched recently. No angry graffiti marred it and no transport official had thought to remove or mask the reminder of yet another cruel blow to the taxpayer.
Perhaps the public sector should forget the mantra of ‘private equals efficient’ once and for all….