Government procurement post-Carillion

In March 2020, the well-regarded Institute for Government (IfG) think tank held an event to mark the launch of a report looking into Government outsourcing and procurement post the collapse of Carillion.

Construction giant Carillion fell into liquidation in January 2018. Prior to this, Carillion had been one of the Government’s largest suppliers, undertaking a range of work of construction and facilities management activity, across various sectors.

However, an inquiry from the Business and the Work and Pensions Select Committees later found its collapse was "a story of recklessness, hubris and greed, its business model was a relentless dash for cash."

In fact, Carillion owed its suppliers and subcontractors hundreds of millions of pounds. Much of this was either payment due for completed work, or retentions held on work already undertaken. The suppliers never received their money back.

So, two years on, the Institute for Government sought to review how the Government is now approaching outsourcing, and what still needs to change.

On the day, a panel consisting of IfG (Tom Sasse and Nick Davies), CBI (Liz Crowhurst, Head of Infrastructure) and Shaw Trust (Chris Luck, CEO) discussed the findings of the report.

The panellists concurred that the principles of the Government's ‘outsourcing playbook’, developed after the collapse of Carillion, were sound. However, it was found that these principles are not yet being universally applied throughout Government.

The report also made a number of sensible recommendations, notably:

• Name a Cabinet Office minister who is responsible for improvements in outsourcing.
• Use this summer’s spending review to give the Cabinet Office funding to support and scrutinise contracting by departments.
• Extend contracting training to local government, the NHS, and other public bodies.
• Equip the new Audit, Reporting and Governance Authority with the statutory powers recommended by the Kingman review, including to force changes in company accounts rather than applying to court to do so.

These are sensible reforms which have the support of ECA, alongside the Government’s new requirement to remove late payers from the tendering process.

However, as report author Tom Sasse commented, "the race to the bottom on price is probably the biggest problem we have in contracting". Looking ahead, how the Government approaches this challenging issue will be fundamental to whether we see real change in procurement.

Our hope and expectation is that the Government will accelerate implementation of the Construction Leadership Council’s Business Model’s workstream output on Procuring for Value. This industry collaboration focused on the creation and establishment of a procurement model focused on the whole-life cost of the built asset, not just the construction cost.

In which case, procurement could finally be based on value rather than price…

You can view the report here - https://www.instituteforgovernment.org.uk/sites/default/files/publications/carillion-two-years-on.pdf

This article was originally published on the ECA blog on 13 March 2020. It was written by Rob Driscoll, Director of Legal & Business at ECA.

--ECA

[edit] Related articles on Designing Buildings Wiki

• Carillion.
• Consultancy playbook.
• ECA articles.
• Insolvency.
• Late payment.
• Liquidation of contractors in the construction industry.
• Outsourcing playbook.
• PFI.
• Procurement.
• Prompt payment code.
• Public procurement.
• Retentions.
• Sourcing playbook.
• The problems with retention.