UK Edition
Government shares blame for Carillion says Serco boss
The boss of Serco has accused the Government of presiding over an outsourcing market where only the “dumb and desperate” want to compete for public sector contracts.
Rupert Soames said the Government had played a part in the collapse of support services giant Carillion by forcing companies to take huge risks when carrying out public services.
Carillion was put into liquidation last Monday after amassing huge debts due to a number of contracts that ended up costing it more than it anticipated. Much of its work was in delivering public services such as cleaning local authority buildings and serving school meals, as well as taking on major public construction projects such as building hospitals and railways.
Writing in The Daily Telegraph on Monday, Mr Soames accused the Government of only offering long-term fixed price contracts, which can be derailed by policy changes such as increases in the minimum wage, which suppliers cannot plan for.
Exiting public private partnership agreements is incredibly costly because of the inflexibility of the terms of contracts won several years ago, leaving Carillion to continue even when it knew a project would be loss-making. Government contracts are “punitive” Mr Soames claimed, blaming contract terms on many smaller firms leaving the market in recent years which has resulted in an over-reliance on large businesses.
He said: “Government, as the sole customer, cannot escape some responsibility if the result is a dysfunctional market, in which only the dumb and desperate want to compete.”
A Government spokesman said: "The Government wants to get the best value for the taxpayer and in order to achieve this needs to allocate risk appropriately when awarding contracts. We accept that the vendors need to make reasonable returns for the level of risk they sign up to – it is therefore in the Government's interest make sure that the level of risk is appropriate."
Serco has faced its own financial difficulties as a result of public sector work. Mr Soames joined the company in 2014, just after it had issued a profit warning. It had suffered spiralling costs on large government contracts including the controversial Compass agreement. Serco provides accommodation, transport and other related services for asylum seekers across the UK under a deal due to expire next year.
It had underestimated the total cost of its Government work by £450m.
The company had also faced embarrassment in 2013 when it emerged that it had been overcharging to provide electronic tagging for offenders.
Under Mr Soames, Serco has written £1.5bn off the value of troubled contracts as he has battled to turn the business around.
Carillion’s collapse last week has sparked a renewed debate over outsourcing, as Labour leader Jeremy Corbyn seized on the company’s failure to argue services should be delivered by the public sector.
The Prime Minister was forced to defend the Government against claims of negligence over contracts awarded to Carillion after it issued a catastrophic profit warning last summer.
Theresa May said: “If the Government pulled out of contracts, or indeed private sector companies pulled out of contracts, whenever a profit warning was issued, that would be the best way to ensure that companies failed and jobs were lost.”
Mr Soames said he would place a substantial bet that Carillion’s contract “will be successfully reassigned within a matter of weeks, and that Government has been more canny on this than people are inclined to believe.”