Tuesday, February 20, 2018
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Carillion, construction firm that works in hundreds of schools, to go into liquidation

    Categories: News

A firm that provides facilities maintenance, cleaning and catering services to hundreds of schools is to go into liquidation, leaving thousands of jobs at risk.

The government has confirmed this morning that public funding will be provided to maintain the public services run by Carillion, after it failed to reach an agreement with officials to try to save the company.

Carillion currently provides facilities management in 875 schools and mechanical, electrical and fabric maintenance services in 683. The firm also holds cleaning contracts for 245 schools.

Other services include catering, health and safety, energy management, grounds and property maintenance.

It is currently unclear what will happen to the firm’s 43,000 staff, 20,000 of whom are based in the UK.

In Oxfordshire, the local county council has announced it has taken over most of the services previously provided by Carllion, and even has the fire service on standby to feed pupils.

Kevin Courtney

The company was previously responsible for feeding around 18,000 pupils in 90 schools in the county.

“We expect school staff will be in work as normal today but if this doesn’t happen we will provide school lunches to schools needing support, and the fire service are on standby to deliver them,” said Alexandra Bailey, the council’s director for property, assets and investment.

“We are confident no child will go hungry at school.”

Meanwhile, the government has sought to reassure Carillion employees that they will continue to get paid and should go to work as normal today.

“Staff that are engaged on public sector contracts still have important work to do,” cabinet office minister David Lidington told the BBC.

Kevin Courtney, joint general secretary of the National Education Union, warned the firm’s collapse would put a strain on schools.

“Headteachers and other school staff face another strain on their excessive workloads as they try and make short-term contingency plans and new arrangements for the long-term, while Carillion staff working in and for schools will be anxious about their job security and their pensions,” he said.

“While the government must protect the employment and pensions of Carillion’s public sector workers it must also take a long hard look at its encouragement of private sector involvement in schools and the unnecessary risks being taken with children’s education and wellbeing.”

Alongside its facilities services, Carillion has built around 150 schools, and also set up an academy trust that now runs two schools in the north west.

Carillion Academies Trust runs Inspire Academy in Ashton under Lyne and Discovery Academy in Hyde.

Freddie Whittaker:

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  • There must be an enquiry into Carillion's collapse. Ministers ignored concerns about the firm despite rumblings about its future (and the future of similar outsourcing firms) surfacing in at least 2015. Hedge funds spotted a chance to profit from a collapse in Carillion's share price. Why didn't the Government and its advisers? Why continue giving Carillion millions of pounds of government contracts after profit warnings? http://www.localschoolsnetwork.org.uk/2018/01/call-for-enquiry-into-collapse-of-carillion-ministers-ignored-red-flag

    • Possibly because not awarding Carillion contracts on the basis of rumours and the actions of hedge funds would be a clear breach of public procurement legislation, leaving the public sector with massive financial claims against them.
      If they met the stated economic minimum requirements, and legislation (coming from the EU) has made it a priority to water these requirements down, then no public body could deselect them on the basis of unproven "concerns".

      • Mark - 'The over-riding procurement policy requirement is that all public procurement must be based on value for money, defined as “the best mix of quality and effectiveness for the least outlay over the period of use of the goods or services bought”'.
        Value for money doesn't necessarily mean the cheapest - 'quality and effectiveness' should be taken into account. Unfortunately, it's unclear whether all public procurement meets this requirements. As an NAO representative told the BBC - these contracts may look good on paper but the reality can be very different.
        At the same time, 'Procurement Policy Note 04/15 sets out government policy to ensure that bidders’ past performance is taken account of in major government procurements.'
        How does this relate to Carillion and the 'rumours'? The profit warnings weren't rumours. The hedge fund activity was. But these could have acted as a warning and allowed government procurement officials to look at Carillion's record. It hadn't been squeaky clean as I pointed out on LSN yesterday.
        See https://www.gov.uk/guidance/public-sector-procurement-policy for rules.

        • OK, a few things to clear up:
          a) under current procurement regulations it is not possible to select on the basis of lowest cost, even if you wanted to. Quality has to be taken into account. If any public sector body tried to procure on price only they would be immediately, and successfully, challenged by all losing bidders. It doesn't happen.
          b) profit warnings mean that a company's profits are going to be lower than previously expected. They do not act as evidence that a company is not financially secure and are not a compliant evaluation criterion.
          c) the ability to take account of bidders' past performance mainly relates to whether they were terminated for poor performance under previous contracts and has nothing to do with financial security.

      • Mark - red flags had been waving for years about possible dangers in outsourcing public sector work to the private sectors. http://www.localschoolsnetwork.org.uk/2018/01/we-cant-always-rely-on-the-private-sector-present-chancellor-warned-in-2012
        These include concerns that government departments didn't have the skill or expertise to negotiate outsourcing contracts properly. This goes back to disastrous PFI and other contracts awarded during Labour years (eg allowing Huntingdon hospital to be run by Circle).
        If successive governments hadn't been so keen to outsource then there would have been no need to negotiate such contracts.

        • So is your solution that Government should do everything?
          Build all the homes, hospitals, schools, roads, railways, prisons, power stations itself (as well as designing them and doing the surveying, M&E and civil engineering and structural work)?
          Make its own supplies, from paper clips to food to computer equipment?
          And how about all the services, from cleaning the roads to landscaping?
          The public sector is no different to the private sector and you or I in this regards - some things it can do itself and some it can't, so it gets someone else to do it. Do you service your car yourself or to you 'outsource' the job to a mechanic? Do you grow all your own food, or do you 'outsource' that job to farmers/supermarkets?
          No public sector anywhere does everything itself, especially when it comes to massive infrastructure projects.

          • Mark - you misrepresent my position. If a road needs building it makes sense to outsource this to a reputable building company. If hospitals require medicines they purchase them from a pharmaceutical firms or suppliers. And if schools need paper clips, they buy them from a stationer or supplier such as ESPO.
            But when vital public services are outsourced, then there are dangers:
            1 They can collapse like Carillion and Southern Cross leaving some public services in danger;
            2 The contractor may do things more cheaply but standards could fall (eg employing untrained personnel to teach);
            3 The contractor's main responsibility is to its shareholders. It makes sense, then, to reduce costs and maximise profits. This can be done by paying workers less, introducing longer hours or subcontracting the work so the contractor doesn't have to bother with national insurance, pensions, sick pay etc.
            When profit-making firms become involved with essential public services, it isn't altruism it's an investment. If the investment doesn't pay off, then the firm can walk away. But if the firm performs poorly, then the Gov't sometimes has to pay the firm to stop the contract early (see Private Eye for examples).

  • If they met the stated economic minimum requirements, and legislation (coming from the EU) has made it a priority to water these requirements down, then no public body could deselect them on the basis of unproven “concerns”.Please clarify!

    • Public procurement legislation is designed to ensure that whenever the public sector purchases anything (be it goods, services or building words) then that process is run so as to ensure that (a) the public sector gets best value (which as Janet has pointed out does not mean the lowest price), and (b) every organisation is treated fairly.
      Historically one of the perceived problems with procurement legislation is that in practice it favoured the big corporations (Capita, Interserve, Bouygues etc) rather than small businesses. The reason for this (ironically in the current circumstances) was that the public sector was so concerned about the risk of the contractor going bust that they tended to insist that they would only enter into contracts with organisations that could clearly demonstrate a massive degree of financial security. One of the ways this was done was by insisting that only organisations who could show they had several years of turnover above a certain level (often many millions of pounds) could bid for the work.
      Naturally a consequence of this is that smaller and medium sized organisations, as well as new organisations entering the market, were precluded. This was seen (across Europe, not just in the UK) as being (a) bad for the economy, and (b) bad for ensuring best value was achieved.
      So when new procurement rules were brought in in 2015 there was a big push to ensure the public sector market was opened up to these other organisations. Part of this was ensuring that the ability to preclude organisations for financial reasons was watered down. This would allow the smaller and newer organisations to take part.
      An analogy is to look at the mortgage market. A safe way of lending mortgages is to insist that buyers must have 50% equity and only borrow twice their salary. But that's not practical, and is certainly not desirable. So the lending company's lower their level of protection and accept more risk - as a result more people get mortgages, but there has to be an expectation that some of these will default.