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David Behrens: Bureaucrats’ failure of imagination fed the monster of Carillion

Carillion's collapse should prompt a wholesale review of government buying practices
Carillion's collapse should prompt a wholesale review of government buying practices
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I don’t want any credit for prescience – I’m not one of those hedge fund managers who made fortunes this week by betting on Carillion’s shares collapsing. And I certainly take no pleasure in seeing people put out of work.

But my remarks here last Saturday about the culture of complacency and waste which leads the Government to hand its most lucrative contracts to unfeasibly large outsourcing companies were more timely than I imagined.

Carillion is, or was, the most corpulent of all the fat cats on the public sector’s tick list, and its liquidation demonstrates emphatically that the conventions which govern the awarding of taxpayer-funded work are not only disadvantageous but also ineffectual.

Before we attempt to unpick the scandal that surrounds Carillion’s collapse, let’s take a step back and ask ourselves how a single company could possibly claim to be a specialist in such unrelated endeavours as bridge building and the provision of meals to schoolchildren. The answer is that it could not – but it didn’t need to be, because the necessary work was going to be recontracted to companies of its choosing.

Those other, smaller companies could have been engaged directly in the first place, but – and this was my point last week – they would have not have been able, by dint of their leanness, to comply with the litany of guarantees the Government requires of its contractors.

Well, as we now know, neither was Carillion.

The country’s second-biggest construction company was in reality a middleman, there to mark up the bills of smaller contractors in return for administering them. That’s why it was possible for it to collapse with virtually no assets. It didn’t go into administration; it went straight to liquidation, because it had nothing worth buying.

And Carillion is not the only company to operate in this way. Virtually every other big public project is put in the hands of a similarly-sized contractor.

Why should this be the case? Here I have to agree with George Osborne, who, unshackled from the protocols of Whitehall, was free this week to say what he really thought. It was, he said, the fault of civil servants.

How so? It is they, not Ministers, who divvy up the contracts; they who draw up the rules which govern ultimately who gets what; and they who oversee the closed shop that has made our public services dependent on just a handful of large outsourcers.

For the civil servants in question, those who live in the procurement departments of every public body, there is safety in numbers. A big company, they reason, has procedures in place to account for all the money it handles and is less likely than a small firm to go to the wall.

Carillion’s collapse has blown that theory spectacularly out of the water.

But the model was already holed because the cascading of contracts from big firms to small ones and then to individual workers meant that the civil servants did not know who was ultimately doing the work for them.

Yet – and this goes to the heart of the complacency that defines our civil service – there was no incentive for reform because the clerks knew full well that if anything did go wrong it would be their Minister’s head on the block, not theirs.

Besides, they could justify the use of very big companies by pointing to their knowledge of the red tape in which Government contracts come bound. These days, this encompasses not only financial governance but such de rigueur policies as green footprints, transparency and proportionality. These may or may not be important but so far as the procurement department is concerned, they are just ticks in a box. A ticked box is a hedge against the buck stopping on the desk of the clerk who ticked it.

If the Carillion debacle tells us anything other than the obvious, which is that the company was run incompetently by over-rewarded managers who must face their own reckoning, it is that the way in which public contracts are awarded by both central government and local authorities must now be the subject of a wholesale review – one which favours small and medium-sized companies with local roots, who can do better work at lower prices than Carillion and its ilk ever could.