Insights Michael Baker

Carillion’s collapse reveals the need for a new pact between UK government, its suppliers and the public

While the UK government may be the contracting agent, the customer is the taxpayer and unless companies tackle legitimate concerns about governance, pay and accountability the UK will return to state monopoly provision of public services.

Carillion’s Board and auditors will rightly be looking nervously over their shoulders in the coming weeks as the way risks were, or rather weren’t, managed at the company is pored over by regulators, politicians and the media.

There was a calamitous failure to look after the long-term interests of employees, customers and shareholders. But the impact of Carillon’s collapse will be felt beyond the firm and its supply chains and reach right into the way UK government infrastructure and maintenance projects are delivered.

Opponents of private sector involvement in delivery of public services now sense that public opinion has moved decisively their way. Even arch free-marketeer and former Tory Chancellor Lord Lawson this week backed calls for a review of the private-finance initiative (PFI) model for public investment.

We shouldn’t be surprised that it is those on the left who have renewed vigour in the battle of ideas on how to deliver public services. While business leaders complain of wafer-thin margins and taking on high levels of risk, the public rightly questions the sanity of a model which handsomely rewards company bosses at the same time as, in the case of Carillion, frontline employees lose their jobs and the public sector picks up the tab for failure.

Yet some of these concerns from business deserve closer examination. The government has paradoxically become much more astute in how it buys goods and services on our behalf. Since the review by Sir Peter Gershon in 2004 and the reforms driven through by Sir Francis Maude after 2010, the terms of trade have greatly improved in the taxpayer’s favour. In many cases leaving naïve suppliers nursing deeply unprofitable contracts. Coupled with the government procurement process, which is not suited to rewarding genuine innovation, it is inevitable that financial and operational risks to the delivery of services increase with cost as the only prism through which to decide contract awards.

If costs have come down to the taxpayer, trust in the private sector to deliver these services also remains pitifully low. That’s largely due to a lack of clear accountability. The terms of many of these contracts haven’t changed since the mid-1990s and often fail to allow for meaningful public engagement on incidents, issues and crises in our age of greater transparency. The irony is that as the government outsources the management of public services to the private sector, those companies then outsource the management of their communications and reputation back to their government customer, usually under a veil of “commercial confidentiality”, making the roles and responsibilities of both parties impossible to understand to the public. When things go awry it’s often unclear who is to blame. What may be self-evident in contractual terms becomes obscured by political and ideological agendas and any truth or insight lost in a fog of claim and counter claim.

As Labour articulates a clear vision for re-nationalised public services, the lack of ideas from companies or government about how to re-energise the model for public service delivery in a digital era is breath-taking. Trade bodies are notable by their absence. The limp statement from the Business Services Association on the demise of Carillion, one of its members, which “welcomed” the government response but failed to mention frontline jobs or accountability is indicative of a lack of urgency to grip the issues. A solution is required, because the private sector’s energy, innovation and creativity has much to offer. But a new compact is necessary to re-establish trust, based on a new approach to transparency and accountability. While government may be the contracting agent, the customer is the taxpayer. Unless companies and their representatives can tackle legitimate concerns about governance, pay and accountability to the public, they will forfeit their role and the UK will inevitably return to state monopoly provision of public services.