Learning lessons from Carillion’s collapse



(Title Image: Metro)

The Issue

The final backbench members debate of the year was on the subject of PFI contracts, in particular Carillion – the PFI giant which collapsed in January 2018.

In shorthand, PFI is “mortgage” type funding arrangement where a private company builds something (like a school, road or hospital) and is then paid each year for a set amount of time (i.e. 30 years) by governments or councils to maintain it before it reverts to public ownership. Carillion gobbled up lots of these contracts and when they collapsed it caused significant problems in England.

Wales hasn’t had as much exposure to these deals as PFI was rejected under Rhodri Morgan’s “Clear Red Water” doctrine, but active PFI contracts in Wales still exist and cost Welsh public authorities about £100million a year to pay off.

There’s a detailed briefing from the Member’s Research Service.

The Motion

The Senedd:

  • Notes the report of the House of Commons joint inquiry on the lessons to be learned from the collapse of Carillion.
  • Acknowledges the (English) National Audit Office report on NHS England’s management of the primary care support services contract with Capita.
  • Calls on the Welsh Government to publish an analysis on the lessons for Wales from these two reports.

Key Points

Lee Waters AM (Lab, Llanelli)
For (the motion): There’s a danger in relying on “too big to fail” corporate monoliths.

  • Report quote: “Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers.”
  • The botched delivery of back-office functions by Capita for English GPs “could have put lives at risk” according to the English National Audit Office.
  • The Carillion and Capita scandals are a result of inadequate internal and external checks and balances; they became “regulatory time bombs”.
  • Budget pressures mean decisions are taken too quickly; Capita already delivers contact centre and control room operations for South Wales Police, which are partly automated. If this continues to happen automation will be seen as cover for cuts, not to improve public services.

Dr Dai Lloyd AM (Plaid, South Wales West)
For: “Private outsourcing of a complex public service only ends in tears.”

  • Business support for GP practices is incredibly complex; GPs are independent contractors paid by the number of patients they see and treatments they provide.
  • Business support managers in primary care are often “amazingly experienced” and their functions can’t be neatly packaged together and sold as in England, which resulted in the loss of decades of experience.
  • If only a small detail is missed it could hamstring a GP practice for days.

Jenny Rathbone AM (Lab, Cardiff Central)
For: Break up the “Big Four” audit cartel

  • Capita is responsible for assessing women with vaginal meshes to decide if they were eligible for disability on behalf of the UK Department of Work & Pensions; many were flatly denied home assessments and mobility allowance even if they have mobility problems or incontinence.
  • Auditors should be held accountable for their actions; they’re often paid by the company they’re auditing and the “Big Four ” auditing/accounting firms effectively operate as a cartel.
  • We need to remember that Abellio was in the running to run the next Wales rail franchise but had to withdraw following their Carillion’s collapse (their infrastructure partner).

Neil Hamilton AM (UKIP, Mid & West Wales)
For: This isn’t a new problem.

  • It’s not clear why the UK Government’s Crown Commercial Service didn’t do anything to stave off Carillion’s collapse despite profits warnings.
  • The problem of “creative accounting” go back at least 25 years to when he was a Corporate Affairs Minister and came across similar problems which led to the collapse of Polly Peck and others.
  • Governments have marketised services but haven’t actually created markets; what they’ve done is create regional monopolies where the company makes a profit but the taxpayer is still on the hook.

Mick Antoniw AM (Lab, Pontypridd)
For: This is what happens when you trust the free market.

  • Wages are stagnating as labour markets are transformed by outsourcing and automation, all the result of governments which have sold their soul to the free market.
  • The taxpayer will foot most of the bill for Carillion’s collapse.
  • Procurement in Wales should be based on ethical business standards, fair work and social justice.

Welsh Government Response

Finance Secretary, Mark Drakeford (Lab, Cardiff West)

  • Capita and Carillion have a presence in Wales so it’s right to debate these reports from England.
  • The likes of Capita are unfit and lack the relevant experience to discharge the responsibilities handed to them by the UK Government; public authorities that get things wrong are accountable, but nobody gets a vote to get rid of Capita and Carillion didn’t stand for election.
  • The UK Government kept propping up Carillion when the writing was on the wall.
  • Providers of public services should be obliged to provide details of supply chains, company ownership and governance structures.
  • Company directors should be liable for the actions of their companies. The Guardian: “Limited liability is supposed to encourage entrepreneurship. In Carillion’s case, it seems to have created a moral hazard”.

Vote

The motion was approved unanimously.

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