NAO: Carillion made big profits from its work at schools

The collapsed construction firm Carillion made profits of up to 15 per cent on its work for schools in England.

The firm reported revenues of £79 million for its education activities in England in 2016, and made much larger profits on its work in 312 schools than it did for its central government contracts, according to a damning report by the National Audit Office.

Councils and schools across England were forced to implement emergency contingency plans when the outsourcing giant collapsed in January. It had provided facilities maintenance, cleaning and catering services to hundreds of schools.

Advisers to Carillion’s creditors reported that it was achieving operating profits of between 13 and 15 per cent on its work for schools. This compares to a forecast profit on the firm’s central government contracts, such as the six it held with the Department for Education, of around 1.4 per cent.

The spending watchdog’s investigation also revealed that the DfE has allocated an estimated £3 million to deal with the fallout from the collapse.

The DfE was one of 26 public bodies that provided contingency plans to the Cabinet Office in advance of the firm’s fall. Others included Oxfordshire county council, which was forced to put the fire service on standby to feed school pupils as part of a contingency plan that cost an estimated £3.4 million.

The Cabinet Office was “still seeking improvements” to contingency planning in schools and local authorities by the time Carillion went into liquidation.

Overall, the firm’s untimely end is expected to cost the public purse £148 million.

Now the NAO is demanding better oversight of large government contracts.

“When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts,” said Sir Amyas Morse, the body’s head.

“Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened. The government has further to go in developing in this direction.”