Government hasn’t learnt from the Carillion failure!

30th September 2018

Industry matters • News

The UK Government hasn’t learnt a thing from the Carillion failure!

In July 2018, the House of Commons Public Administration and Constitutional Affairs Select Committee met to consider public sector outsourcing and contracting following the Carillion collapse.

The Committee summarised in its report the current situation saying: “The UK Government spends £251.5 billion per year on outsourcing and contracting. The UK spends 13.7% of GDP on public procurement, which is not significantly different from countries such as Denmark (14.16%) or Germany (15.05%). Despite the UK leading innovation in this field for some 30–40 years, there has been a depressing inability of central government to learn from repeated mistakes and to some extent the collapse of Carillion and the state of the sector reflects this.”

“The Carillion failure reflects long term failures of Government understanding about the design, letting and management of contracts and outsourcing.”

Public sector procurement of goods, services and works is wedded to the framework approach. This is a pre-agreement with a supplier or suppliers as a means of setting out terms and conditions for making specific purchases, known as ‘call offs’. In other words, awarding contracts.

Government departments must also adhere to Official Journal of the European Union (OJEU) thresholds when awarding contracts.

The upper OJEU limits for the UK are currently set at:

  • £118,133 for Central Government
  • £363,424 for Defence and security
  • £181,302 for other contracting authorities
  • £65,630 for small lots.

Anything above these thresholds require the contract to awarded via an EU/OJEU compliant route to market. This opens the playing field to UK and European companies. All public-sector contracts are decided on a ‘most economically advantageous’ basis.

The framework approach can look attractive. Get a large key supplier on-board, to coordinate the various ‘disciplines’ by agreeing to the terms and conditions, or with some contractual terms already agreed. This saves time when calling off. There is hope of better value from suppliers in return for a place on the framework. The downside is the procurers get locked in to one lead supplier. Often being large firms they are more expensive than using a range of smaller niche suppliers, who could work direct. As seen with the Carillion failure, if the key supplier goes under, the whole house of cards comes tumbling down.

At the end of May, Homes England launched the procurement of its new Multidisciplinary and Technical Services Frameworks. It claimed ‘these would broaden the range of technical and design services available to support Homes England’s and other public bodies’ work to accelerate the supply of new homes’. As indicated above, getting onto a framework is normally only feasible for a large company given the cost and amount of work involved. And Homes England has stated that it will make the frameworks available to other public sector bodies, like local authorities, free of charge; to help them procure specialist technical services and develop homes for their residents. Previous frameworks have been used by over 300 other public bodies.

The Multidisciplinary Technical Services Framework will provide technical and engineering, master planning, planning, design, project and cost management services – everything except asbestos building services. Worth £150m it will have 15 framework members coordinated by one major supplier.

Given the fact that a few large suppliers will gain the ability to supply their goods and services on a national basis it effectively excludes SME businesses because their local authorities will probably be using the national framework. And despite the failings identified by the Select Committee, post Carillion, the Homes England Multidisciplinary Framework is a recipe for more of the same.

You couldn’t make it up! Details can be found Here

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