back to article pens Carillion-proofing playbook: Let's run pilots of work before we outsource it, check firms' finances

The UK government has outlined a series of safety nets designed to prevent another Carillion disaster in what it is calling an "Outsourcing Playbook". woman holds contract agreement to sign Capita, Serco, Sopra Steria to write cheat-sheets for in case they collapse READ MORE The document sets out 11 policies, some of …

  1. Anonymous Coward
    Anonymous Coward

    Should be able to provide the service offered?

    You know, check if they have ships if you're contracting for a Ferry service etc?

  2. }{amis}{

    suppliers the government is both courting and policing – including Capita

    So yet again the government is asking the foxes to teach the chickens self-defence!

  3. The Pi Man

    Input from the SMBs?

    The procurement process is already skewed against small businesses. This skews it even further and yet again plays into the hands of the large incumbents who have better means to run a pilot - a pilot that's probably defined by them in the playbook to make the work unattractive to anyone but themselves.

    1. Warm Braw Silver badge

      Re: Input from the SMBs?

      The problem is that the government operates at a scale that dwarfs the ability of SMBs to service.

      Governments outsource because they don't want the overhead of thousands of employees and their associated liabilities on the books. The theory is that the government can concentrate on policy rather than personnel. There's not much advantage gained if you effectively have to retain the middle management and coordination that would be involved in letting and monitoring hundreds of individual contracts with SMBs.

      I'd suggest that the government is trying to do rather too much centrally and should be trying to devolve a lot of its work to regions and local authorities, who could then manage a relationship with local SMBs. The historical pattern has been exactly the opposite because local democracy makes it difficult for a central government to impose its writ, but history also suggests that the less central government is able to achieve, the better.

  4. @JagPatel3

    Financial risks on Trident – a Conspiracy of Concealment

    It is very well for the government to suggest that project risks should “sit with the party best able to manage them”, but the fact of the matter is that, they invariably end up in the hands of the procuring authority.

    Take for example, the Trident nuclear submarine replacement programme.

    The problems associated with placing single-source, development contracts like Trident with selected defence contractors on a preferential basis are not only limited to the usual delays and cost over-runs – they extend to the contractual support arrangements put in place to acquire and re-provision additional Support Assets to sustain the platform in-service, for the full period of its service life.

    If past record is anything to go by, this aspect of defence procurement will only deliver further spiralling costs – and a headache for the Treasury.

    Financial risks don’t come any bigger than the £41bn officially set aside for the initial cost of the four Dreadnought submarines – £180bn if one takes into account the whole-life sustainment costs – given the fact that, the cost of acquiring and re-provisioning Support Assets associated with military equipment over the whole life cycle can be in the order of four to five times the prime equipment costs. It is hard not to see why there exists an extremely high risk that spending on conventional, non-nuclear equipment programmes will be crowded out by the excessive cost of the nuclear deterrent in the years ahead.

    Even the then Permanent Secretary at the Ministry of Defence admitted to the Public Accounts Committee in October 2015 that, it is the likelihood of financial risks on the Trident programme materialising sometime after contract award, which keeps him awake at night.

    Anyone who has worked in the defence engineering industry will know that financial risks start-out as innocuous looking technical risks on the Defence Contractor’s premises, where selected ones are deliberately concealed by the Contractor during the design and development phase, then skilfully transferred to MoD Abbey Wood, Bristol where they suddenly morph into ‘show stopping’ risks and come to the fore immediately after the main investment decision has been taken (as they have done so spectacularly on the Type 45 destroyers with total power blackouts, costing a further £280 million to fix), ultimately ending up as an additional cost burden on the Front Line Commands, who have recently been given day-to-day responsibility for managing the defence equipment budget – resulting in sleepless nights for many other people too!

    This happens because a key behavioural characteristic of Defence Contractors is that they will always choose to conceal technical risks identified early in the programme, by engaging with procurement officials and getting them to focus on declared risks which ordinarily fall in the trivia category, whilst skilfully diverting their attention away from those really huge ‘show stopping’ risks which they will only reveal later on, when things go wrong, to realise their objective of ‘growing’ the Contract by getting Abbey Wood Team Leader to raise Contract Amendments and/or let Post Design Services Contracts.

    They achieve this by contriving situations which entice procurement officials into partaking in detailed design decisions relating to the evolving Technical Solution, and then using this involvement to coerce procurement officials into raising Contract Amendments later on. Indeed, it the very existence of Contract Amendments and PDS Contracts that causes Contractors to conceal ‘show stopping’ risks in the first place!

    These concealed risks then come to the fore immediately after (never before) the main investment decision has been taken, surprising everyone (except the Contractor) and imposing a budget-busting burden on MoD.

    And because there exists no ‘Code on Ethical Behaviour in Business’ which would offer protection to good people on the Contractor’s payroll (generally in the direct labour category) who are driven by strong professional, ethical and moral values and who would otherwise blow the whistle on this conspiracy of concealment, they are forced to remain silent.

    The only people who are not in the know about this blatant scam are those in the pay of the State!

    So, the chances of financial risks coming to the fore on Trident after the main investment decision has been taken are about as certain as night follows day.

    The Trident nuclear submarines were meant to serve as a deterrent to those who would wish to do harm to the UK, but they have ended up posing a threat to the financial security of this country.


    1. Omgwtfbbqtime

      Re: Financial risks on Trident – a Conspiracy of Concealment

      "These concealed risks then come to the fore immediately after (never before) the main investment decision has been taken, surprising no one (except the MOD) and imposing a budget-busting burden on MoD."


    2. not.known@this.address

      Re: Financial risks on Trident – a Conspiracy of Concealment

      @JagPatel3 if you have proof of this then you should hand it over to the police as it constitutes fraud on a grand scale, or possibly theft (of resources - ie cold hard cash). Even if you don't trust the Thin Blue Line, there's so little love lost between the Boys'n'Gals in Blue and their paymasters that there's a good chance there would be an Investigation and Heads Would Roll.

      If you really don't trust the Police then pass it to a national newspaper and let them run the story.

      Just bear in mind that when technical people start talking bureaucrats - including corporate management - stop listening. What you attribute to malice is just as easily explained away as typical management behaviour.

  5. teebie

    "Capita boss Jon Lewis"

    Jon Lewis is in charge of how terrible Capita are, and Capita are in charge how terrible John Lewis' customer service is. It's the circle of strife.

  6. Anonymous Coward
    Anonymous Coward

    Will anything actually change?

    "Businesses, including those in tech, will be required to run a pilot for work that is being outsourced for the first time, and all complex projects will have to go through a review process that was previously reserved for major projects."

    Have any of the major failures occurred at a small scale? Hundreds of businesses are able to do what is required on a small scale for what the government requires. What they can't do is scale up to meet the governments required demand, so instead it falls to a handful of big suppliers that can meet the scale but do so relatively poorly and at significant expense. Which were the reasons for not doing it within the public sector in the first place. Maybe the issue isn't with either the public sector or outsourcing? Maybe the issue is with managing large organisations to perform well? I don't see this making a great deal of difference to the end result.

    "Their financial standing will also be assessed, to see how likely it is they will go bust before the work is complete, and the government must carry out a "make versus buy" assessment to see if it could do it better alone."

    Carillion was a relatively healthy company until a number of the major projects they were involved in encountered unforeseen issues. Many of them were appeared to be genuinely unforeseen issues with three projects totalling around £1.1bn - the public sector exercised it's contractual rights to withhold payments until issues were addressed which resulted in financial distress, leading to banks withdrawing credit, leading to Carillion's collapse, further financial distress to Carillion's suppliers and a failure to deliver the projects. While I can understand the reluctance of the government to step in and rescue Carillion after rescuing banks in the financial crisis AND Carillion's management having made poor decisions (in hindsight - at the time they made sense and it is unlikely that the large project issues were known), the public sectors unwillingness to share risk in the building contracts ultimately led to the worst possible result for everyone involved. Carillion would likely have passed the financial tests for the projects that led to its downfall given that the projects were 5+ years. So again, what will this really change other than the embarrassment of the government awarding a contract for HS2 to Carillion that ultimately had little financial impact compared to the rest of the failure?

    "There will also be measures to tackle "inappropriate risk allocation", supposedly a "perennial concern" for suppliers, and something the UK’s spending watchdog has picked up on. Instead, the government must scrutinise risks more closely and ensure they "sit with the party best able to manage them"."

    This is balancing "the supplier's being paid too much by the taxpayer" with the "margin's have been cut so thin that one small failure will result in a catastrophic collapse". Taxpayers don't trust the companies to charge a fair price and companies complain that the margins for this work are too small - the historical solution is a regulatory authority that upset both sides while increasing costs for both sides. But assuming a regulatory have the ability to support work to completion (i.e. a rescue fund) where deemed appropriate, better reconciliation processes in the event of a supplier being asked to pickup unforeseen risks and potentially fines/added conditions for companies that are seen to be rewarding inappropriate financial behaviour (including boardroom remuneration), that may be the only alternative for providing large, complex, public sector works. Whether this would deliver the best value for taxpayers is unclear - all options tried so far (public sector/private sector/PPI/etc) have struggled to find the right balance between the cost to the taxpayer and delivering the services that the taxpayer would like.

    1. John Smith 19 Gold badge

      Re: Will anything actually change?

      <Long post of what sounds like a lot of self serving corporate bu|***hit>


      It's not our fault. Having a regulatory that can make us responsible for things isn't going to work

      Just let us continue with BAU.

      My impression of govt outsourcing is that somehow the govt always gets left with the risk and holding the baby and the outsourcer always get left holding the profits, unless like Carillion they (like to RBS) practicing a kind of "Rollover fraud," where the cost inflation from the last contract lets them bid for the next one at below economic levels.

      F**k right off Mr AC.

      1. Anonymous Coward
        Anonymous Coward

        Re: Will anything actually change?

        You may consider it self-service corporate BS, but I would challenge you to go back and read the in-depth analysis of what caused Carillion to fail. Pretty much across the mainstream news spectrum in the UK, the analysis was that the public sector withheld payments that could have avoided Carillion going into administration. With the Liverpool hospital project, it was caused by the cost and time required to remove asbestos allowing the hospital to delay payment for two years, in Scotland it was unexpected ground conditions that delayed a roading project, allowing local Councils to withhold payments for two years, in Birmingham, again the cost of delivering the services rose significantly but the public sector maintained that Carillion had to deliver the services at the agreed cost. As a result of the Carillion failure, all three of those projects are likely suspended for the foreseeable future as alternative suppliers want the true cost to be paid and many of the downstream suppliers refusing to participate in large public sector contracts because they lost so much.

        At the other end of the spectrum, you have Persimmon's role in buy-to-let housing where it appears to have walked away with a significant profit due to massive increases in what the government paid per house.

        The reality is that complex projects take significant time and cost a lot, as long as the decisions are driven by political will, the boom and bust contracts will continue. Nothing presented in this paper is likely to address the issues and instead it will restrict new entrants that fail the financial tests. Is that really going to provide more successful project delivery?

        1. John Smith 19 Gold badge

          Liverpool hospital project, it was caused by the cost and time required to remove asbestos

          With the Liverpool hospital project, it was caused by the cost and time required to remove asbestos allowing the hospital to delay payment for two years,"

          With the Liverpool hospital project, it was caused by the cost and time required to remove asbestos allowing the hospital to delay payment for two years,

          Sounds to me, Mr AC, like the seriously underestimated how much work was involved and the hospital told them they'd have to swallow the excess.

          It then turns out that Carillion were so carefully balanced financially (because of how much money the management had taken out of the business?) that it didn't take much to tip it over into failure.

          I'm sorry for the ordinary employees that got caught in this s**tstorm but I have contempt for the senior management who behaved in this way. They look a lot like RBS. "Carillion. The construction company for the good times."

          1. Anonymous Coward
            Anonymous Coward

            Re: Liverpool hospital project, it was caused by the cost and time required to remove asbestos

            "Sounds to me, Mr AC, like the seriously underestimated how much work was involved and the hospital told them they'd have to swallow the excess."

   you have no desire to be informed, no intention of reading any background information around Carillion's demise or intention to investigate anything that may alter your opinion.

            Carillion had ~£2bn in payments withheld by public sector organisations that resulted in the demise of Carillion and the projects being left incomplete and unlikely to be finished any time in the immediate future. There are not a lot of companies doing private sector construction for the public sector that can carry that amount of debt for an extended period of time (almost 2 years). If you're happy with that outcome, I guess we can agree to disagree and you can retain your uninformed opinions.

  7. John Smith 19 Gold badge

    Is anyone thinking...

    "S88t, shouldn't most of this have been established when when outsourcing became a thing, around the time of Margaret Thatcher?

    4 decades to think "Gee, we should run some pilots when we outsource?" WTF.

  8. J.G.Harston Silver badge ?

    I know our politicians likes climbing up Trump's backside, but we are not a department of the US government yet.

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