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UK parliamentary committee: Carillion collapse exposes flaws in using private companies to deliver services

The report said that the UK government’s priority for outsourcing had been to spend as little as possible while forcing contractors to take unacceptable levels of financial risk
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The report added that government focuses on cost had sent a bad message to ourscourcers

A report from the UK’s Public Administration and Constitutional Affairs Committee (PACAC) has said the collapse of outsourcer Carillion exposed the risks of using private companies to cut the cost of delivering public services.

The report, published on Monday, said that the UK government’s priority for outsourcing had been to spend as little as possible while forcing contractors to take unacceptable levels of financial risk.

READ: Carillion insider dealing probe by the FCA confirmed

The report added that this preoccupation with cost had sent the signal to companies that it was cost, rather than quality, that would inform government decision-making which had resulted in a decline in the overall quality of services.

Carillion, one of the largest UK outsourcers and operator of government contracts, collapsed in January after a series of profit warnings and large debts, with auditing firm KMPG also receiving scrutiny after singing off Carillion’s accounts shortly beforehand.

Bernard Jenkin, chairman of PACAC, said that it was staggering that the government had attempted to push risks onto contractors that it itself did not fully understand.

“The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector. The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.” Jenkin said.

The role of Carillion’s board of directors has already been criticised by other parliamentary committees, with the chairs of the Work and Pensions Select Committee and the Business, Energy and Industrial Strategy Select Committee saying after February hearings: "This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong. We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams. Everything we have seen points the fingers in another direction – to the people who built a giant company on sand in a desperate dash for cash.”

A spokesman for the Cabinet Office said the government would respond formally to the report in due course.

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