There will be plenty of lessons to learn from the demise of Carillion, but what is going to be recovered from this mess? Just another me-too corporation, or something new and refreshing?
With backing from ministers, and some daring, something fundamentally inspiring is possible.
The Public Administration and Constitutional Affairs Committee has already announced our inquiry, Sourcing public services: lessons learned from the collapse of Carillion.
Read more: NHS trusts received a bailout where Carillion’s shareholders lost out
We will be asking about how civil servants assess what to outsource, the real value of each bid, and the risks of letting a contract. We and other committees will also want to know how the government plans to retrieve order from the chaos of collapse.
The private sector construction side of the business may well go the way of all bust building companies – but what about the more profitable public services contracts? The expectation is that the well-established government club of “preferred bidders” in the outsourcing sector will scoop up the contracts which the government is currently maintaining with emergency funding. Serco’s share price leapt seven per cent on this expectation on Monday last week.
For ministers to accept this outcome amounts to a counsel of despair, leading to an even more cosy cartel, at the expense of the increase in diversity and competition that would drive innovation and quality in the sector.
It also smacks of the capitalism that the public is coming to hate: deals cooked by a tiny elite of company directors and professional advisers, who enrich themselves under the noses of ministers and civil servants that become accessories to this way of doing things.
The alternative – and ministers have indicated to me that there is interest in this – is for the Administrator to allow time to set up a new company, owned substantially by the employees.
It could be a mutual company, or like John Lewis Partnership plc, which is owned by a trust on behalf of all its employees (known as partners), who have a say in the running of the business, and receive a share of annual profits, which is usually a significant addition to their salary.
Just think how different it would be if every cleaner and cook had a share in the business that wins these contracts from the government.
There is likely to be a capable cadre of senior and middle managers, who are not associated with the decisions for the business to overreach itself and would love the opportunity lead a new model public contracting company, which is accountable to its employees.
The government has great influence over the nature of the companies it contracts with. It is not “just the customer” – it has real power.
The Administrator would need convincing to pursue this course, but since the government is paying to keep these contracts going, this is something ministers can demand.
If the Administrator asks for more time and money to attract new financial backers and to establish the new leadership team, ministers should provide the cash and confidence in the short term. The Treasury could insist on taking a non-controlling share in the business, so that over time the taxpayer recovers the present losses.
Carillion’s 2016 Annual Report was laced with words about corporate social responsibility, but also showed its dividend increasing as its pension shortfall grew. The Pension Protection Fund now estimates it will have to take a hit of £900m – its largest ever single bill.
If the public thinks that capitalism is always like this, the whole system will lose consent. To transfer the wreckage of Carillion to a new employee-owned enterprise would demonstrate how capitalism can be for everyone.
Read more: Revealed: Just how bad has it got for Carillion’s small business suppliers?