It would be hard to find evidence of anything good that came out of the collapse of Carillion; it was in fact an unmitigated disaster that will resonate deeply within the construction industry for years to come, and around which legal actions are still in the offing. But the National Audit Office has had a good stab at it in its latest report on good practice for public sector contracting authorities. (https://www.nao.org.uk/wp-content/uploads/2021/03/Good-practice-guidance-managing-the-commercial-lifecycle.pdf)
Better oversight of major suppliers might result, but unfortunately it won’t be of any use to Carillion’s stricken creditors and those whose careers were disrupted by the collapse, but it shows that at least the public sector is confident of being able to handle the fall out of a major supplier of that scale failing in the future.
The report, providing good practice guidance which aims to help improve management of the commercial lifecycle among public sector contracting authorities, highlights that the Cabinet Office had to step in to oversee the establishment of contingency measures to ensure that almost all services continued uninterrupted when Carillion went into liquidation in 2018. Several months notice of the likely failure had been been given, which was fortunate as it is obvious from the NAO report that if the collapse had been a more sudden event, the fallout could have been significantly worse.
When the company’s financial failure looked like being a strong possibility from summer 2017 the Cabinet Office started to coordinate contingency planning across central government, which involved a lot of spending departments. Advisers were appointed and details gathered about department’s contracts with Carillion. The fact that the question had to be asked whether any contingency plans existed is perhaps telling – it confirms that there was no central oversight of the amount of projects that were being entrusted to one company, which suggests a lax attitude to risk management.
As it turned out there were 65 contingency plans that had been drawn up by no fewer than 26 public bodies. This knowledge wasn’t pulled together however until the government was effectively considering whether to pull the plug on the company when it had asked for a £223 million bailout, which was, no doubt wisely, rejected.
The government made finance available to the Insolvency Service so that services could be delivered until new arrangements could be made for each contract, minimising disruption to public services. Work on hospital construction contracts that Carillion was undertaking came to a halt though.
Learning from the Carillion experience, the NAO says it wants to see contingency plans in place for supplier failure, and coordination across government clients. Information that will be needed for effecting a transition from a failed supplier needs to be understood and easily available.
The report lists issues to be tackled for improving management of the ‘commercial lifecycle’ in public sector contracting authorities. The surprise may be the restraint shown by the NAO in identifying issues, as those with even a passing familiarity with government procurement could come up with many more in the management of procurement processes alone. CL
Nick Barrett
Editor