THE UK Government ignored advice to put public sector outsourcing company Carillion on its highest risk rating less than two months before it collapsed in January with the loss of thousands of jobs, according to a report from Westminster’s Public Accounts Committee (PAC).
It also found that Carillion’s failure indicated that too many public works contracts were concentrated in a few private firms, and a lack of transparency around outsourcing to such firms risked creating an environment in which “poor practice takes root”.
Companies with revenues of more than £100 million a year which supply government departments are assessed in a red-amber-green (RAG) traffic-light system and those at most risk of collapse are given “black” status.
Carillion had been rated amber because of its performance on contracts for the defence and justice ministries, but was only downgraded to red after it issued a profits warning last July.
“It appears the government was not aware of Carillion’s financial distress until this point,” said the report.
“In November 2017, officials recommended a provisional black rating for Carillion. However, following representations from the company, the Cabinet Office did not confirm the designation. Carillion collapsed less than two months later.”
The PAC said the collapse had raised “significant concerns” about the Government’s relationship with major suppliers.
Committee chair, Meg Hillier, said: “Government has become dependent on large contracts to deliver public projects and services. Great secrecy surrounds them. If a company providing a number of these contracts fails, this is bad news for service users and the taxpayer.
“The strategic supplier risk assessments provide an insight into the relationship between government and suppliers and give rise to many questions we want to pursue.
“We recognise there are commercial sensitivities around that relationship. We are also alert to the potential impact on jobs and small businesses should certain information be made public.
“We have been mindful of the workers and businesses who could lose out through no fault of their own if certain information is in the public domain.
“But equally we are concerned about the lack of transparency and its potential to create an environment where poor practice takes root.
“Taxpayers deserve to know where their money is going, that their investment is being managed wisely and that government is providing effective oversight.
“The Carillion papers identify clear and compelling problems with the business in the months leading to its collapse.
“Government had the opportunity to deal with them.”
Hillier said that when a contract broke down, the government was the provider of last resort, and added: “While it did not bail out Carillion – the company went in liquidation – it did inherit responsibilities and costs, ultimately borne by taxpayers, that would otherwise not be met. Failure of essential services is not an option, so we need to understand the potential risks to the taxpayer.
“The fallout from Carillion’s collapse and the resulting burden on the public purse is still not clear.
“We will be seeking clarity on these critical matters and probing suppliers and government about what they are doing to ensure such a catastrophic failure is not repeated.”
The committee said it would hold an inquiry into concerns raised by the papers relating to suppliers with a risk rating of amber, red or black.
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