Public Services > Central Government

Whitehall and wider public sector checks its exposure to Carillion’s collapse

David Bicknell Published 15 January 2018

Central government departments and agencies, councils, NHS trusts and other IT services vendors all facing impact from contracts or relationships with construction company which is going into liquidation

 

The Cabinet Office is leading the government’s response to the insolvency of Carillion, saying it will continue to deliver all public sector services.

Carillion’s collapse has left departments across government and the wider public sector, from councils to hospitals, as well as other IT vendor and service providers, all trying to understand the extent of their exposure.

The Cabinet Office has said the government will provide the necessary funding required by the Official Receiver to maintain public services.

Cabinet Office minister David Lidington said, “It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company.

“Since profit warnings were first issued in July, the government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been keep our essential public services running safely.

“For clarity – all employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.”

According to the Cabinet Office, Carillion held approximately 450 contracts with government, representing 38% of Carillion’s 2016 reported revenue. Key central government contracts are held with the Department for Education (DfE), the Department of Health and Social Care (DHSC), the Ministry of Justice (MoJ), the Ministry of Defence (MoD) and the Department for Transport (DfT).

Along the major contracts Carillion is currently also working on are new facilities for Royal Liverpool University Hospital, which is due to be completed in 2018, but is up to a year behind schedule; the Midland Metropolitan Hospital in Smethwick in the West Midlands, which due to be completed in 2019; and the Aberdeen Western Peripheral Route, which is due to be completed complete this year.       

One of the local councils having to check on its relationship with Carillion is Wolverhampton City Council. One of its contracts registers refers to an ICT services contract for £26m with Carillion which is due to end on March 1 2018.

The IT services were originally subcontracted to Capita IT Services. In a press release in May 2010, Capita IT Services said it had been selected as part of the Carillion-led Local Education Partnership (LEP) to provide the managed ICT service for Wolverhampton City Council’s £370m Building Schools for the Future (BSF) programme.

Capita IT Services also said at the time it was working with Carillion in delivering ICT to BSF projects at Durham County Council and Rochdale Metropolitan Council. It is understood that the Durham contract with Carillion may not expire until 2019, and Carillion still appears to have an involvement in the Rochdale contract. However Capita today told Government Computing it had checked and it not had any involvement in the three contracts - Wolverhampton, Durham and Rochdale - for a number of years.

Question marks over what was known about Carillion’s financial state may also be asked of the Education and Skills Funding Agency (ESFA) which last November awarded Carillion two lots on the the ESFA's school building framework. It is possible that the ESFA may not have been aware of the extent of Carillion’s financial woes when the framework contracts were awarded, though the first Carillion profits warning was made in July 2017.

According to a notice on Carillion’s website, the framework is for a period of four years and replaces the existing ESFA Contractors Framework, on which Carillion was also a provider.  The framework provides a procurement route for education providers to access pre-selected contractors to deliver new education facilities.

Carillion was appointed on both lots it bid for, covering the north and south of England, for high value projects (worth more than £12m). The frameworks are anticipated to be worth around £2.64bn in total over the period to 2021, with Carillion one of nine contractors selected on the framework.

The government was expected to make a statement today to the House of Commons about the Carillion situation. It is also likely that some select committees and departmental ones will launch their own investigations. Bernard Jenkin, chair of the Public Administration and Constitutional Affairs Committee has said it would look at the "lessons to be learned from the collapse." A future National Audit Office (NAO) investigation may also be a possibility.

The extent of the impact of Carillion’s collapse on Whitehall was summed up by one press officer within a department. Asked which one was dealing with the Carillion situation, one replied, “All of us.”

 

 








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