After Carillion: Public sector outsourcing and contracting Contents

1Introduction and context of our report

1.In January 2018, Carillion, a large facilities management and construction firm, entered liquidation. The National Audit Office (NAO) estimates that when Carillion collapsed it had 420 contracts with the public sector.1 Carillion held contracts with the Ministry of Defence, the Ministry of Justice, Network Rail, HS2 Ltd and various hospitals.2 The Local Government Association calculated that 30 councils and 220 schools were directly affected by the collapse of Carillion.3 When Carillion collapsed both the Scottish and Welsh Governments issued statements about their exposure to its failure.4 By value, Carillion was the sixth largest supplier to the public sector in 2017.5

2.Carillion had first issued a profits warning in July 2017. At this point, the Government began contingency planning for the failure of the company. We evaluate this planning in paragraphs 103–4. Carillion announced the award of several large government contracts after its profits warning in July 2017: some of these were awarded before and some after the company’s disclosures.6 In January 2018, the company appealed to the Government and its creditors for assistance. The Government decided not to supply this assistance and the company directors, upon learning the news, put the company into liquidation.

3.The Rt Hon David Lidington MP, the Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office (“the Minister”) recently spoke at the think tank Reform about his own proposals for reforming contracting in the public sector. We have reflected on his comments in drafting our report. He thanked “both to the civil servants and contracted workers who rose to that challenge in very difficult circumstances.”7 We endorse the Minister’s comments and would like to thank the civil servants and contracted workers, who worked tirelessly to safeguard public services in very difficult circumstances during the Carillion crisis. We would also like to put on record our sympathy for the pensioners, employees, families and subcontractors of Carillion who were caught up in its liquidation through no fault of their own.

4.A number of investigations have since begun into the events which led to Carillion’s collapse. These include investigations by regulators into the reasons for Carillion’s collapse. In Parliament, the Work and Pensions and Business, Energy and Industrial Strategy Committees launched a joint inquiry which examined the corporate governance and regulatory consequences of the company’s collapse. Their inquiry also examined the ramifications of the collapse for small businesses who worked with Carillion and for the company’s pension scheme. They reported in May 2018.8 The NAO published the results of its own investigation into the Government’s handling of the Carillion failure in June 2018.9 This investigation set out Carillion’s role in public sector contracting, the Government’s monitoring of Carillion and contingency planning for its collapse, the Government’s response to Carillion’s request for support and the Government’s management of Carillion’s eventual liquidation.

5.The Public Accounts Committee (PAC) have begun an inquiry into the Government’s approach to its strategic suppliers.10 Their inquiry looks in detail at the Cabinet Office’s approach to strategic suppliers and examines the role of the Crown Commercial Service and Crown Representatives. We have therefore not examined these issues in our report. We look forward to PAC’s report.

6.We began our inquiry, before the other select committees, in January 2018. We have sought to examine five important strategic issues arising from the collapse of the company that we believe are essential for the Government to tackle in the aftermath of the failure of one of its major outsourcers:

a)How appropriate is it for particular public sector projects or services to be run by the private sector? (Chapter 2);

b)How successfully the Government has used the Private Finance Initiative to achieve value for money for the taxpayer?; (Chapter 3);

c)Is the Government just the customer or does it have wider responsibilities as the steward of these markets? (Chapter 4);

d)How have companies tended to react to the Government’s approach to this market? (Chapter 5)

e)What capability does the Government still lack in letting and managing contracts? (Chapter 6)

We also examine in Chapter 5 the Government’s response to the Carillion crisis.

7.We launched our inquiry on 15 January 2018. We held six evidence sessions (including a joint evidence session with the PAC). We received 34 written submissions. We would like to thank all those who gave evidence to our inquiry. We would also like to thank Professor Gary Sturgess, New South Wales Premier’s Australia and New Zealand School of Government Chair of Public Service Delivery at the University of New South Wales and Professor of Public Service Innovation at Griffith University in Brisbane, Queensland, who served as our advisor on this inquiry.


1 Report by the Comptroller and Auditor General, Investigation into the government’s handling of the collapse of Carillion, Session 2017–2019, HC 1002, p. 6

2 House of Commons Library Briefing Paper Number 8206, The Collapse of Carillion, March 2018, p. 35

4 House of Commons Library Briefing Paper Number 8206, The Collapse of Carillion, March 2018, p. 35

5 Report by the Comptroller and Auditor General, Investigation into the government’s handling of the collapse of Carillion, Session 2017–2019, HC 1002, p. 6

6 Ibid. p. 33

8 Business, Energy and Industrial Strategy and Work and Pensions Committees Second Joint report of Session 2017–19, Tenth Report of the Business, Energy and Industrial Strategy Committee of Session 2017–19 and Twelfth Report of the Work and Pensions Committee of Session 2017–19, Carillion, HC 679

9 Comptroller and Auditor General, Investigation into the government’s handling of the collapse of Carillion, Session 2017–2019, HC 1002

10 Public Accounts Committee, Strategic Suppliers Inquiry




Published: 9 July 2018