Carillion: Government blamed for forcing companies to take risks over public sector contracts
The Government has been accused of playing a key role in the collapse of Carillion by forcing companies to take huge risks when carrying out public services.
Serco boss Rupert Soames said ministers had created a market where only the 'dumb and the desperate' would bid for public sector contracts.
Wolverhampton-based Carillion, which employed 43,000 people including 20,000 in the UK, went into liquidation a week ago with debts of more than £1.3 billion and a large pensions deficit.
It was engaged on several public sector contracts, including the HS2 rail link, building the Midlands Metropolitan Hospital in Sandwell and providing school meals and maintenance.
Mr Soames said Serco had faced similar issues in 2014, wiping £1.5bn off its balance sheet and taking £450m of losses on Government contracts – but had 'made it through the valley of the shadow of death'.
He pointed to the problem of long-term fixed price public sector contracts potentially being derailed by unexpected changes, such as the increase in the minimum wage.
And deals could be 'punitive' and very costly to exit, resulting in a market which is over reliant on large businesses, Mr Soames said.
"Government, as the sole customer, cannot escape some responsibility if the result is a dysfunctional market, in which only the dumb and the desperate want to compete," he said.
However, Mr Soames rejected arguments advanced by Labour that services should be brought back into the public sector.
He argued that monopolies 'always become inefficient and focused on protecting their own interests, rather than those of their customers'.
Mr Soames highlighted the way some firms were loading up with debt and how banks were allowing them to do so.
But he said that having favoured private companies too much in the 1990s and 2000s, the pendulum has now 'swung too far the other way' on public sector outsourcing.
"We need to bring it back to centre if suppliers are going to want to work for Government to deliver public services," he said.
"And suppliers need to stop over-promising and under-performing, stop accepting risks they know they cannot manage, and be more transparent and accountable."
It came as Theresa May said she was preparing to set out 'tough new rules for executives who try to line their own pockets by putting their workers' pensions at risk'.
In response, the Institute of Directors said any new plans 'must ensure that there are no unintended consequences that might impact the health of currently successful companies'.
