Carillion’s demise was on the cards from as long ago as 2016; their failed merger with Balfour Beatty waved a very public red flag, showing that not everything was working as it should. Their rapid growth through acquisition over a decade had sucked in valuable management time, and acquisitive integrations had taken more of a toll on the company than many predicted. Margins were tight, with 2016 showing a profit of £146m on sales of £4bn, just a 3.6% profit. This meant they were extremely vulnerable to failed projects and defaulting debtors. With debts of £1bn and a pension deficit of £600m, it was only a matter of time before a company that was on the cusp of being ‘too big to fail’ succumbed to market pressures and was put into liquidation.
Over the years, the UK Government came to rely on just a few large firms (Capita, Serco, G4S etc) and they have all had their ups and downs, with some very public failings. From construction faults in Scottish schools that impacted thousands of schoolchildren[2] to G4S’s inability to provide security for the 2012 Olympics[3], from Virgin Care’s threatened lawsuit against the NHS after losing out on a contract[4] to delays in much-needed hospital construction[5] the private sector’s inability to deliver has occasionally led to widespread condemnation.
Now, post-Carillion, unsteadiness persists among the big firms. Capita, which provides services to both public (NHS, MoD) and private sector (Co-op, Three mobile) needs a total financial restructuring of debt; while Interserve, is having its finances closely monitored by the Cabinet Office.”
Serco, meanwhile—a public service provider which manages prisons, the Yarl’s Wood detention centre, and healthcare facilities, and which provides support services to the military—has been flagged as a “high-risk” client by an offshore firm [6], and Mitie, which is contracted by the government for social housing services, an immigration detention centre at Heathrow, and roof repairs at the Palace of Westminster, has issued a series of profit warnings and is in the midst of a restructuring plan.[7] It is worth noting, however, that some of the largest firms do have rosier outlooks, among them G4S, Kier, and Balfour Beatty. [8]
If all the risks and controversies surrounding PFI have suddenly crystallised into something singular and unignorable with the Carillion collapse, this moment still doesn’t spell its end. As former Audit Commission Director David Walker notes, “Whitehall departments, councils and other public bodies simply don’t have the capacity to take over the IT, facilities management and service commitments embedded in many PFIs.” [9] And they don’t have the cash, either. “Contracting out and public-private partnerships are still very much in the government’s thinking as ministers wrestle with another 10 years of tough spending reviews.”[10]
[1] National Audit Office, HM Treasury PFI and PF2 2018
[2] BBC News
[3] Business Insider
[4] The Telegraph
[5] Construction News
[6] The Guardian
[7] The Guardian
[8] Ibid.
[9] The Guardian
[10] The Guardian
