News

The collapse of Carillion – what went wrong and what lessons are there for voluntary sector providers of public services

24th January 2018

The news this week that the UK’s second-largest construction company Carillion is going into liquidation with £1.5bn debt has made us think about what the VCSE sector can learn from this sorry scenario.

You might be thinking; ‘what has Carillion going bust got to do with me and my organisation?, but it is worth remembering that, just like Carillion, a great many local charities and social enterprises are increasingly entering into contracting arrangements with public sector commissioners and buyers, for the delivery of outsourced public services. These contracts differ widely in their value and focus, but all will have certain traits in common, not least being the good old value for money factor, whereby the public sector buyer seeks to get the best value and providers compete to tender for the most efficient service possible.  Procurement professionals will often argue that open competition leads to efficiency gains and drives down costs. But there’s a difference between price and value, and the cheapest price may be a false economy.

The old adage that ‘there are always two sides to a story’ certainly applies in this scenario. Carillion’s management have clearly made mistakes in over-reaching themselves and entering into too many risky, low-margin (no margin!) contracts, and losing sight of their original mission. But they are not alone in taking their share of the blame – why were public sector commissioners still awarding contracts to Carillion even after the profit warnings and alarm bells ringing about delays to sub-contractor payments?

The drive towards larger, longer contracts, with a Prime Contractor managing an often extremely complex supply chain, has not served smaller, specialist or local providers well – mainly because of inequitable risk-sharing arrangements. Primes will generally pass on risk down their supply chain – why wouldn’t they?

Sue Pearson – VAS Consortium Manager

Carillion