Yet again we see a company that is “too big to fail” toppling over, leaving the taxpayer to pick up the tab, those lucky enough to hold a decent pension take a hit, and service users let down (Carillion talks fail to provide rescue plan, 15 January). It will take forensic accountancy to uncover the full story of what has happened, but we are likely to see a familiar pattern: a failure of corporate governance, overambitious and insufficiently cautious senior executives, shareholder pressure for short-term profit maximisation, contracts awarded on cheapest cost, and horrendously complicated PFI projects. Government and liquidators now face the unenviable and expensive task of sorting this mess out.
We cannot undo the past but we can avoid similar mistakes from happening in the future. The Competitions and Markets Authority should encourage diversity of company form and foster greater competition in public markets to avoid the dominance of a few large PLCs. We need to embrace alternative delivery models – employee-owned businesses and social enterprises that are not focused on short-term shareholder gain and can deliver solutions beyond the traditional state v private sector dichotomy.
Commissioners already have tools at their disposal to ensure that public contracts create public value, the Social Value Act placing an obligation on all public bodies to consider the wider economic, social and environmental impact of the services they commission. Outsourcing isn’t necessarily a bad thing, but the question must be raised as to who is winning in the race for contracts and what can be done to level the playing field.
Deputy chief executive, Social Enterprise UK
Jon Trickett, the shadow Cabinet Office minister, says: “Given £2bn worth of government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the government’s handling of this matter.”
A review of public sector procurements is long overdue. In my experience of competing for public sector procurements, it often seemed that little or no account was taken of the financial viability of any company tendering – only the price tendered was of serious interest. Furthermore, it seemed that those responsible for running the procurements were measured solely on how well they followed the internal procurement rules and were never measured on how well the contract they awarded turned out. It has therefore never surprised me when contract after contract is awarded to the lowest-bidding company that failed on numerous previous contracts. It is undoubtedly one reason that many public sector projects do not meet their objectives.
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