Carillion: Government blamed for creating 'dysfunctional' public sector market
The chief executive of Serco said the firm had faced similar problems in the past to those that have brought down its rival.
Monday 22 January 2018 11:05, UK
The boss of outsourcing giant Serco has taken aim at the Government after the collapse of rival Carillion, saying it had created a market where only the "dumb and the desperate" would bid for public sector contracts.
Rupert Soames said in a newspaper article that ministers could not escape "some responsibility" for forcing companies to take big risks when carrying out public services.
Carillion, which employed 43,000 people including 20,000 in the UK, went into liquidation a week ago, mired in £1.3bn debt and also saddled with a vast pensions deficit.
It was engaged on a variety of public sector contracts from helping construct the HS2 rail link to delivering school meals, maintaining prisons and building hospitals.
Writing in the Daily Telegraph, Mr Soames described how Serco had faced similar issues in 2014, wiping £1.5bn off its balance sheet and taking £450m of losses on Government contracts – but had "made it through the valley of the shadow of death".
He pointed to the problem of long-term fixed price public sector contracts potentially being derailed by unexpected changes such as the increase in the minimum wage.
Mr Soames added that the deals could be "punitive" and very costly to exit, resulting in a market which is over reliant on large businesses.
"Government, as the sole customer, cannot escape some responsibility if the result is a dysfunctional market, in which only the dumb and the desperate want to compete," he said.
Mr Soames rejected arguments advanced by some that services ought to be brought back into the public sector.
He argued that monopolies "always become inefficient and focused on protecting their own interests, rather than those of their customers".
Mr Soames did not lay all blame on the Government, also highlighting the way some firms were loading up with debt and how banks were allowing them to do so.
But he said that having favoured private companies too much in the 1990s and 2000s, the pendulum has now "swung too far the other way" on public sector outsourcing.
"We need to bring it back to centre if suppliers are going to want to work for Government to deliver public services," he said.
"And suppliers need to stop over-promising and under-performing, stop accepting risks they know they cannot manage, and be more transparent and accountable."
The comments come as, in the wake of Carillion's collapse, the Prime Minister said she was preparing to set out "tough new rules for executives who try to line their own pockets by putting their workers' pensions at risk".
In response, the Institute of Directors said any new plans "must ensure that there are no unintended consequences that might impact the health of currently successful companies".