Post-Carillion, let’s re-think public service delivery

The collapse of Carillion re-opens the debate on the role of the private sector in public service contracts. Mo Baines and Paul O’Brien from APSE ask how public services can be de-risked from contractor insolvency

In the wake of the collapse of Carillion the veteran Radio 4 presenter John Humphrys drew scorn for reminding his listeners that he remembered the days when you had to ‘wait six months for a telephone to be installed’; ergo the idea that the public sector could not have done better than Carillion.

Of course, the Humphry prism of improvement through privatisation is not one that most consumers recognise. Privatisation of utilities has often left them paying more and receiving less in terms of customer care. However, perhaps more galling for public sector managers is that the past narrative of public sector inefficiency comes back to haunt them even though, in local government at least, we have seen a seismic shift in operational efficiencies.

Some may argue that this was as a direct result of Thatcher’s voyage into Compulsory Competitive Tendering (CCT) which at its peak sent the message that if the public sector could not compete with the best (or indeed worst) of the private sector they would do the work instead. CCT was a blunt instrument and it distilled in policy terms the New Public Management (NPM) theory of private sector efficiency over public service bureaucracy. In other words, leave the public sector to allocate resources but allow the private sector to manage those resources effectively.

However, as many have now realised, these efficiencies are often assumed rather than evidenced, and in any event should be contextualised against the wider issues. Large contractors are often reliant on their own subsidiary companies, leaving a complex web of accountancy practice; they will typically carry little by way of their own assets and rely on sub-contractors to squeeze value from the supply chain.

‘Efficiencies’, not unreasonably, can be construed as downward pressure on workers’ wages and lower prices for smaller suppliers. In this sense, then, we see the impact of Carillion not just on the primary public sector clients but along the whole food chain; small businesses who may go to the wall through unpaid invoices, agency workers locked out at the site gates with little prospect of being paid or finding alternative employment quickly enough to stop them falling into financial difficulties, and gaps in public services.

So, in this imperfect world of public contracting, is it time to think again? APSE firmly believes the answer is yes.

APSE’s ongoing research on insourcing (bringing services back in-house) is not driven by any ideological stance of public good versus private bad, but by the day-to-day realities of managing private contractors to deliver public services.

First and foremost, insourcing is being driven by poor customer experience. Going through a third party to access a public service is not proving the best way of doing things. Contractor arrangements, often sold on the idea of a collaborative or partnership approach, do not work out in the harsh day-to-day reality of managing a contract and making payments. Work that falls outside of the contract scope proves costly to the public sector client.

In recent years, in the age of public sector austerity, contracting out services has had a negative impact on the ability of the public sector to cut their cloth to suit the new financial constraints.

Those councils with the bulk of their budgets tied into servicing contract payments have not had the flexibility to reconfigure services to meet the new demands. In the most drastic scenarios this has curtailed the ability of local councillors to make real decisions about changing local priorities. Where councils have retained capacity through delivering many services in-house they have still faced harsh choices about reducing services, but have at least been able to reflect in their decisions the local priorities for their communities and take into account the unique factors within their local economies.

So what are the options now for those councils that have found themselves with either a gap in their services or with unfinished construction schemes in their local areas?

While most public sector contracts will have a right to terminate and ‘step in’ in the event of an insolvency situation, they will be reliant on good legal advice and swift action to rescue schemes.

Novating contracts to another provider is likely to be a possibility, at least as a short-term fix, but they will still need to consider the EU procurement rules. Carillion’s collapse will not be a long-term reason to ignore the usual due diligence and procurement requirements that sit with public sector commissioners.

For services that have been outsourced, councils will no doubt no look to insource that service with service continuity being uppermost in their minds. This has happened many times before in similar circumstances of contractor insolvency; indeed in the case of education catering, local authority catering teams often need to step in at the last minute when schools find contractors have walked away from contracts during school holidays. Similarly, the collapse of repairs and maintenance company Connaught led to emergency action to ensure social housing tenants were still able to receive a repairs service.

Local councils have a long and rich history of working with businesses; with both private suppliers and providers. In the long term however, the public sector reliance on a contracting culture is proving to be seriously flawed. Now is the time for a major rethink of how the public sector delivers and achieves excellence in its services.

  • Paul O’Brien is the chief executive of the Association for Public Service Excellence (APSE) and Mo Baines is head of communications and coordination at APSE


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