Carillion and the condemnation of “outsourcing”
In the wake of the Carillion debacle the Twittersphere is buzzing with the New Left’s condemnation of “outsourcing”. “Bring it all back in-house” they loudly declare. Exactly what they mean by this is ill-defined. Should the NHS manufacture light bulbs and ambulances? Where do you draw the line?
It is perfectly right to question what Carillion actually did. They were, on one level, simply intermediaries between the public sector (and big public-sector-like corporations) and their suppliers. They set (outrageous) payment terms. They squeezed margins. Less contentiously they briefed, programmed and co-ordinated suppliers, contractors and consultants and managed their commissions.
How much does John McDonnell want to bring in house? Would he want to build new hospitals using Direct Labour Organisations, in-house Architects and Engineering departments? If less than this who would actually manage projects? Would it be public servants or would it be external project managers answerable to public servants but independent of contractors? Or does putting total responsibility for building delivery, funding and maintenance onto a single entity make better sense?
Would buildings and estates be better run and maintained by local building managers, government departments responsible for groups of estates, or a central government funded property services agency perhaps? How do you get the balance right between local accountability and expertise?
We’ve been through all of this before. Unfortunately ideology tends to trump common sense and experience.
One thing that was clearly wrong about Carillion was its payment terms to subcontractors: 120 days. This should have been stamped on by government. Subcontractors, suppliers and consultants should not have been used to extend the financial reach of Carillion. If this single flaw had been rectified the investors and banks might not have provided Carillion with the means to become the monster it became, gobbling up its competitors. If the investors and banks had been foolish enough to go along with this strategy and it had gone bust all the same, the burden would have fallen to a much lesser extent on the businesses that do the real work.
The sort of shift that Mr McDonnell and Co propose won’t happen overnight and whether or not the electorate will trust them with the task remains to be seen. In the meantime some sensible rebalancing should be possible.
The commissioners of projects should ask: who will be key to the success of my project? Are they appointed at the right level? If there is some intermediary in the process do they add value? Do the contractual arrangements that the client body makes adequately and fairly protect the interests of the suppliers, subcontractors and consultants?