Carillion: Companies can go bust, councils cannot

By | January 22, 2018
Originally published:

Carillion has crashed; it’s winter for social care provider Four Seasons. The National Audit Office, using polite accountant speak, has condemned PFI as a giant scam and, implicitly, convicted HM Treasury of gross negligence. For the first time in the 30-year advance of outsourcing in public services, a principal political party is now officially opposed.So dominant a model for so long, contracting now looks tired, undependable,passé. Problems have been shaping for years. Before Carillion, government ministers had to bail out companies that were supposed to be replacing publicwith cutting edge private provision – in probation, for example.The ignominious failure of G4S to fulfil the terms of its contract at the 2012 Olympics was followed by problems in refugee housing and benefits assessment. Local authorities from Liverpool to Thurrock have inhoused cleansing and maintenance – Tory administrations as well as Labour concluding that flexibility and cost tip the balance in favour of employing their own staff rather than relying on a market that often turned out to be far from competitive and, for some services, monopolistic. In Sheffield, how many residents wish councillors could vary the terms of their contract with Amey and save those trees?Of course outsourcing hasn’t stopped. Councillors facing tough financial constraints are still attracted by the apparently lower costs on offer.

During last year Wiltshire, Staffordshire, Dartford and Essex went ahead with outsourcing deals. In the NHS, too, despite talk about moving away from competitive tendering, Virgin and other companies gain new business. Private firms won a significant proportion of clinical contracts in 2017.The trouble is: we don’t know whether such contract wins represent ‘value’ –best or otherwise. Councils often procure through a single portal or framework that makes buying disposable gloves or hanging baskets for the town centre the same as running a residential home for children with autism or an HIV support service — and they are not. We argue in a pamphlet published by the Smith Institute for pause and deep reflection aboutthis mysteriously under-researched phenomenon.Since the Thatcher Government compelled councils to let commercial contracts in the early 1980s, outsourcing has grown hugely, but piecemeal. The public has been rigorously excluded. Deals are shrouded in ‘commercial confidentiality’ and as a result no one can do much comparison. Council A does a deal with Veolia. Council B contracts with Serco. But they rarely swapnotes on the firms’ performance, or the relative costs of contract monitoring, or what they know about a company’s executive pay or tax avoidance.Outsourcing has, we argue, pushed fragmentation in public services and is itself a symbol of how disjointed provision has become. Individual contracts may not cover costs to the public sector as a whole. An environmental services deal, for example, may appear cheaper.

But what if paying staff less (which why costs are lower) reduces household incomes in the area; what if union derecognition diminishes social capital; what if lower pay produces a higher uptake of tax credits? No one calculates net cost to the public purse; it’s never assessed up front.Essex County Council recently let a contract for family support services to Virgin Care. The contract, Essex might say, is rigorous: money won’t be paid unless service indicators are met. But the contact doesn’t encompass the subsidy to Virgin, when it employs social workers trained at public expense. Virgin Care is wrapped in a serpent’s coil of holding companies extending back to Virgin Group Holdings based – surprise, surprise — in the tax haven of the British Virgin Islands, minimising the company’s contribution to the revenue stream on which public services depend.Outsourcing can be rigid and inflexible. PFI locks public bodies into lengthy, invariable payment terms. Liverpool’s Parklands High School is notorious: for buildings that cost £24m to build (and now are empty) the council is compelled to pay £47m over the next ten years.

A thorough and comprehensive review of outsourcing should be cross sectoral – so the performance, for example, of the Canadian IT giant CGI on behalf of Glasgow City Council can be compared and contrasted with its far from unblemished record supplying services to NHS trusts in England. The Crown Commercial Service could be expanded into a ‘central intelligence agency’. The Local Government Association, Cosla and others should work in parallel, incorporating and reciprocating knowledge from the NHS and Whitehall. We recommend writing a Domesday Book of public service contracts. Councils have a wealth of information and analysis but it is not collated or shared.Public service outsourcing could be worth £100bn. The National Audit Officedoesn’t know. We don’t know. The last major review was in 2008 and that was far from exhaustive. What’s certain is that making in-house provision thedefault – which is now Labour’s position- would entail a massive expansion of directly-employed staff.It’s time for intense reflection on where 30 years of competitive tendering have brought us. In order to outsource, councils have to isolate and ‘commodify’ services: is that necessary? Of course public bodies will have rich and varied relationships with private firms. They often possess valuable expertise, in IT, construction and specialist payroll and transactions services. But contract terms must be comprehensive, explicit and public. So we know for example where, in the accounts, goes the cost of the implicit guarantee – seen with Carillion – that if the provider fails the council or government steps in, either to bail them out or take over the work. Companies can go bust; local authorities can’t.