This Writer believes serious questions should be asked of the people who made this appointment.
In yet another example of the utterly disgraceful revolving door between business and politics, a recently disgraced former-boss of the collapsed government outsourcing firm Carillion has, incredibly, been appointed Managing Director of another company who were recently handed a lucrative multi-billion pound contract by the Tories to oversee HS2.
Mark Davies, who is best known for his ‘stellar’ work at now-collapsed firm Carillion, where he was in the same role from 2011 until its collapse in 2018, was rewarded for his disastrous failure by being appointed MD of Balfour Beatty Vinci’s HS2 joint venture just last week.
Carillion owed huge sums when it went into liquidation in January [Image: Joe Giddens/PA].
It must be lovely, being an executive or shareholder at a big corporation like Carillion – knowing that you can siphon off as much cash as you want and when your firm goes under, the poor will bail you out.
Hundreds of millions of pounds went into executive/shareholder bank accounts in the years when Carillion was under-bidding for government contracts.
That was public money; it should have been used to provide services, not bolster some businessman’s bank balance.
And now public money is being used to underwrite loans to the contractors Carillion betrayed.
As far as This Writer can see, Carillion’s executives and shareholders committed fraud by under-bidding for contracts; they knew they couldn’t honour those contracts at those prices, and were hoping that the funds for future contracts would pay off their liabilities.
It was like a pyramid selling scheme; sooner or later it was bound to collapse.
Well, unless Her Majesty’s Government and everybody who works for it are really inept, we’ve got the names and details of everybody responsible for Carillion – and the company has a vast amount of assets that should be sold to pay off its debts.
I want to see those assets sold off, and prosecutions of executives and shareholders to recover the public money they took under false pretences, with the proceeds used to pay the £100 million the government is putting up at the moment.
Contractors hit by the collapse of Carillion will be able to apply for government-backed loans from high-street lenders as part of a £100m support package.
The business secretary, Greg Clark, said the British Business Bank would support high street lenders to give loans to small and medium-sized businesses, and individuals owed money by the failed outsourcing giant.
The move comes after three high street banks agreed to provide “tailored support” worth almost £250m to those facing a hit from the company’s collapse.
Carillion owed huge sums when it went into liquidation in January, putting thousands of jobs at risk.
The latest financial support measure will provide support to high-street lenders that might not otherwise give loans to Carillion contractors because they may lack the required assets for security.
A contractor walks inside Carillion’s Royal Liverpool Hospital site [Image: Reuters].
The critical Con (and I use the word with a capital letter for a reason) of hiring private companies to do government business rears its ugly head yet again.
We were told we couldn’t see the full impact assessments on Brexit because they were “commercially sensitive”. In fact, they didn’t exist.
We are told we cannot see information on the activities of privately-run public services, such as Atos, Capita and G4S, because they are commercially sensitive and are therefore exempt from examination under the Freedom of Information Act (S.43 exemption).
Undoubtedly there are other examples.
And we know the facts are being hidden from us because they would reflect badly on the companies and the government – that is why efforts to open companies with government contract up to public scrutiny have been rejected by the Tories.
What have they got to hide?
Tory ministers have been attacked for refusing to publish a report on doomed Carillion’s performance – because it’s “commercially sensitive”.
The Ministry of Justice has confirmed it commissioned an independent review into prison maintenance, millions of pounds of which was outsourced to the stricken giant, early last year.
The review was carried out after prisons minister Sam Gyimah said he was “not impressed” by Carillion’s maintenance work in September 2016 and the firm was sent a formal warning.
Despite the row, the firm went on to win another £40million in Ministry of Justice contracts last year – before collapsing leaving 20,000 jobs in the balance.
Yet ministers say the report – together with other reports on Carillion’s effectiveness including an “improvement plan” – will not be handed to the independent House of Commons Library.
Justice minister Rory Stewart wrote: “There are no plans to place the information in the library as the report contains commercially sensitive information.”
It seems Interserve is about to go the same way as Carillion.
If it does, the Conservative government will force the public to pay the costs again, even though they’re the ones who stupidly employed greedy private contractors who put our money in their bank accounts rather than investing it in the public services they are supposed to be providing (at least, that’s the Carillion model).
I hope that Interserve doesn’t go under, but it occurs to me that any private firm with a contract to provide public services will be in breach of that contract if it ends up in receivership due to poor financial management.
So it should be the government’s responsibility to get our money back from these people, rather than charging the public.
It might be easy to force the poor to cough up for the mistakes of the rich, but it isn’t justice.
Let’s have some justice for a change.
It appears the Tory Government could once again be stretching its pan-palms out to catch the overspill from the potential collapse of another favoured private contractor, Interserve.
Interserve’s debt almost doubled from £274m in 2016 to £513m at the end of 2017. An underestimation of the costs involved in a public-private partnership contract to provide waste-to-energy services, which saw the corporation raise its provision on one such project in Glasgow from £70m to £195m, has badly affected it.
And in further deeply worrying news, the corporation’s share price has plummeted from 717p in 2014 to just 63p in December, leading to serious discussions with its lenders over the firm’s remaining financial options.
Although the corporation issued profit warnings in September and October 2017, it has announced that it reportedly expects that its 2017 performance was in line with expectations. This, along with the partial recovery in its share price might be due to the fact that the corporation’s new chief executive announced cost cutting measures: £15m in 2018 to £50m by 2020.
With the corporation employing 80,000 people worldwide – 25,000 in the UK – and when it is responsible for public contracts including cleaning, healthcare, security, probation and construction, one wonders what cost-cutting measures will actually involve and how these might impact the provision of essential public services.
Carillion’s collapse really has changed political thinking.
Here’s Labour’s Jon Ashworth explaining that outsourcing of government contracts, whether tied to Private Finance Initiative deals or not, leads to firms making their profit by cutting staff wages and conditions – which ultimately leads to a poorer service.
He’s absolutely right. This Writer has been saying for years that poor treatment of workers leads to a poor product.
Therefore it follows that, if private business cuts corners in order to make a profit, the only way to provide a decent service is to eliminate the profit motive and for the government to nationalise its work contracts.
The arguments against this are disproved by the facts. All the privatisation-loving Tories can do with future private contracts is confirm Mr Ashworth’s conclusion.
It will be painful to watch, but necessary – to ensure that everybody gets the message.
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This is worth knowing – it’s looking bad for Transport Secretary Chris Grayling:
A Buckinghamshire MP has called for the controversial HS2 project to be scrapped amid the news that Carillion – which was awarded a major construction contract – has collapsed.
Dame Cheryl Gillan, MP for Chesham and Amersham, said plans for the £56 billion line – which will cut through The Chilterns – should be cancelled amid the liquidation of the construction giant Carillion.
During a statement by the minister for the cabinet office and fellow Bucks MP, David Lidington, in the House of Commons on Monday, Dame Cheryl said she warned against the risks to the taxpayer from the company back in July 2017.
When HS2 awarded the contract to Carillion last year, she asked that the Secretary of State for Transport confirm that he had “carried out due diligence on those companies, and that the taxpayer is not in reality carrying unacceptable risks on the construction of HS2.”
She said: “On July 17, I brought the Secretary of State for Transport to this House for 10 o’clock at night to answer the questions I raised about HS2 contractors, and the unacceptable risks to the taxpayer that included Carillion. Unfortunately, those words seem to have come true.”
Urging Mr Lidington to reconsider the project, Dame Cheryl requested that, as he was looking into the effects of Carillion’s collapse on those constituencies in which they had contracts to provide other services, “could he also look at the other failures of HS2, and management, and Government, and wouldn’t he, as well as his constituents, as well as my constituents, and maybe, Mr Speaker, some of your constituents, feel that now is the time to cancel this ill-fated, poorly-run project?”
If this were a movie, it would be called Financial Crisis II: This Time It’s The Outsourcing Firms!
Not the catchiest of titles, This Writer has to admit, but it gets the point across, which is: Carillion went under because its bosses thought it was Too Big To Fail, just like the banks back in 2008.
They were wrong – but I would say this is only because Carillion is the only outsourcing firm to have collapsed – so far.
See, to private companies, government contracts must seem like the perfect scam; the work must be done, so the money will keep flowing. And let’s face it – the Conservatives worked really hard to keep Carillion afloat, even after the profit warnings started arriving.
This is because Tories are determined that private companies must be the best possible option for running public services – even when the evidence tells them the exact opposite.
The ideology held by both Tory government ministers and the company executives who sign contracts with them is that profits are to be privatised and losses nationalised – if anything goes wrong, public money will pay for it.
We see that in every aspect of the way Carillion and the Tories did business.
When people say Government should be run like a business always remember #Carillion and say governments should be run for the people not the 1%.
For a start, according to Cabinet Office minister David Lidington, “rules” did not allow the government to consider all information about a company when awarding outsourcing contracts. Apparently this means that the government could not consider the signs of a company’s imminent financial collapse when deciding whether to award a contract to it, which is quite clearly commercial insanity. Who wrote these rules?
The government, of course.
But even when the rules called for caution, they appear to have been ignored. It was known that Carillion had a serious cashflow problem – there were three profit warnings in the last six months – but the Tories still gave contracts to it. The firm, which has debts of £1.5 billion, issued a profit warning in July, but days later it was given an HS2 rail contract worth £1.4 billion and a £158 million MoD deal. Carillion issued a second profit warning in September, and weeks later got a £62 million rail contract. On November 6, Carillion was awarded £320 million of work on Network Rail’s Midland Mainline improvement programme. On November 17, it issued a third profit warning. The Cabinet manual says firms that issue profit warnings are “high risk” and it is against policy to use them. But the contracts were still signed, because Tory policy is that private companies are better than public services – and they are happy to use public money to perpetuate the pretence.
Despite the warnings about #Carillion the Government pumped more and more of tax payers money into its coffers. A classic case of a private company running out of other people's money. A public enquiry has to happen!
Carillion had a poor record for completing work on time and on-budget because it was overstretched, but despite this poor record of achievement, it continued to win contracts with aggressive bidding that it could not support, we are told. And who loses out?
The public, of course.
Carillion doesn't complete anything on time or on budget. It's too overstretched and too aggressive when bidding for contracts.
Knowing that it could gain lucrative contracts while providing a poor service and being in financial difficulty provides a huge amount of leeway for questionable behaviour, it seems.
So Carillion raised dividend payments to its shareholders in each of the company’s 16 years in business – for example in 2015 they received £80 million and in 2016, £82.5 million. It changed the rules to protect bosses’ bonuses, right before the company’s financial woes began to bite – a move the Institute of Directors has condemned as “highly inappropriate”, as it allowed top managers to benefit in spite of the collapse of the company for which they were responsible. At the same time, it ran up a £600 million deficit in the pension fund for 27,500 employees.
The company has been short-selling its own stock since 2013 (according to the Financial Times). This is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference, an extremely risky and dubious practice.
At the same time, the chairman of Carillion, Philip Green (not the same man who ran BHS into the ground), was an advisor to David Cameron and Theresa May on corporate responsibility. It seems nobody at the government stopped to think that the two might be mutually exclusive – that a director should not advise on corporate responsibility if his company was short-selling its own stock. But then again, it’s possible that nobody at the government knew. Or cared.
The chairman of #Carillion Philip Green was adviser to both David Cameron and Theresa May on corporate responsibility. Just let that sink in.
Government may appoint so-called Crown Representatives to outsourcing companies if there are concerns about them. These people review their performance and assess possible risk for the state. But Cabinet Office records show that no Crown Representative had been appointed to Carillion as of September 2017, two months after the company’s first profit warning. Worse still, it seems that out of 35 “strategic suppliers” like Carillion, only 20 have Crown Representatives. It’s possible that the others aren’t considered to be under threat – but if Carillion wasn’t in September last year, this could be a gross misconception.
Shocking negligence by the Tories.
The Public Administration & Constitutional Affairs Committee has just been told that of 35 strategic suppliers (such as #Carillion) only 20 have Crown Representatives, who review performance & risk for the Gov. Will we see another Carillion?
Note also that Carillion was exempt from the Freedom of Information Act, meaning the public had no way of finding out what this company was doing with public money. Obviously, neither the Tories nor their contractors want members of the public to see that their money is being funnelled into private bank accounts rather than going toward vital public works.
While the government – and David Lidington in particular – seems to be unconvincingly surprised at Carillion’s collapse, others certainly seem to have seen it coming. For example, Richard Howson, director of the company up to the point when its share price tumbled, who benefits from the protected executive payments brought in just before the crisis began, jumped ship last July and is now an executive director of a company working on the Hinkley ‘C’ nuclear power plant. Apparently it is perfectly permissible for an executive who ran one company into the ground to transfer to another, without any questions being asked about his competence or trustworthiness.
Hedge funds are the winners out of Carillion’s collapse. They saw the demise coming and laid bets that it would happen and they have cleaned up. This is grotesque and no way to conduct public sector contracts.
But the employees will. And so will the public who were relying on Carillion to honour its 450 government contracts.
What will happen to Carillion’s public service contracts and employees? It seems unlikely that a Tory government would bring them back in-house – so we must assume, for now, that they will be transferred to one of the firm’s competitors. That will boost the new contractor’s share prices, building up a nice bonus for its shareholders. But will this firm (or these firms) suffer the same fate?
What will be done to protect the public money that has been invested in Carillion? That’s our money and, as a nation, we should expect to see a return on it – but the Tory government uses our cash to prop up these useless outsourcing giants, so it seems more likely that it will all go to waste.
What is the Government’s contingency plan in case of Carillion’s failure? Ministers have claimed that one exists – but now their bluff has been called, will they do a ‘David Davis’ and admit they haven’t got one?
Finally, there is one very prominent and public way we can gauge the government’s reaction to the Carillion mess: Chris Grayling handed the firm a contract to work on the HS2 rail link, knowing that the company was in serious financial difficulty. As Justice Secretary, he had previously handed out contracts to run probation services to private companies that were completely unable to do so. The man is clearly incompetent and should be flushed out of the Cabinet forthwith.
And someone needs to ask why Chris Grayling is handing out massive HS2 contracts to Carillion, despite knowing even Wonga wouldn't lend them £50 if they went cap in hand? Is it because he's totally and utterly inept? The most useless Cabinet Minister in living memory.
If he stays, we’ll know that the Tories couldn’t care less and will carry on funnelling our cash to the privateers, and letting us pay for their failures.
That’s not good enough for the Labour Party, whose members have scented blood and have demanded answers from the Tories.
The collapse of Carillion is a watershed moment. It is time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced taxpayers of billions of pounds. pic.twitter.com/Q9zjU7o3Mq
Carillion becoming another tragic case study in what happens when we privatise profits when things go well and nationalise risks so the taxpayer picks up the bill when things go wrong. Vulture capitalism underwritten by the taxpayer. And don’t forget hedge funds made millions too https://t.co/t804jqNf3c
Shadow Business Secretary Rebecca Long Bailey had some strong words for the government in wake of the #Carillion Collapse! No more socialising debt and privatising profits – a root & branch investigation regarding why contracts were awarded despite 3 profit warnings #Forthemanypic.twitter.com/PlcY9Cs1kJ
CARILLION: Shades of a British Enron. Wild overbidding, fast-and-loose & grossly overpaid management, taxpayers taken for a ride, AWOL auditors & pliant/ignorant ministers and officials. This is going to run & run!
Carillion have continued to fail to pay off debts, meet deadlines on govt contracts, pay suppliers on time but at the same time paid out £80 million in dividends to shareholders. Greed over governance & as usual, workers & supply chain pay the price https://t.co/0iIPmR0I0S
What we see in the #Carillion collapse is the lethal combination of privatisation and limited liability. The shareholders take the profits – in spades – but pick up neither the debts nor the risk of collapsing services.
yes and look what is happening – company going to the wall… they take their bonus before they deal with the job they are paid to do….. not one penny of tax payers money should bail out these privatised companies. https://t.co/mAZl0GFewO
— Will Never Vote Labour Again **All Lives Matter** (@Isobel_waby) January 15, 2018
Maybe JUST maybe the collapse of #Carillion – painful though it is for the workers caught up in it – will be the *tipping point* against the REMORSELESS neo-liberal drive to *privatise* public services .
The government's obsession with outsourcing + privatisation damages our justice sector. Carillion repeatedly failed to carry out basic prison maintenance. Labour had promised to look at bringing repairs back in-house. The government must now do that with the Carillion contracts.
Carillion is the latest example of the fact that privatisation is a broken model. The government must act quickly and bring these crucial public sector contracts back in-house. pic.twitter.com/si15gyNpdT
The next Labour Government will introduce provisions to allow local councils to bring their outsourced services back in-house. Never again should public services and the dedicated workforce be put in the position we now find ourselves with Carillion. pic.twitter.com/QyQqrEOCex
On #Carrillion senior Tory @bernardjenkin tells #r4today that ‘lessons must be learnt’. Indeeed they do. The private sector running public services does not work and the tax payer (us) lose out in many ways.
We now need urgent clarity from Govt on impact of Carillion news on those hospital trusts where Carillion contracted to provide facilities management such as meals & those hospitals in construction. We already have a winter crisis, patients & staff must not suffer even more
Now, instead of having to fund the hole in its finances from its own resources, Carillion and its lenders are expecting us – you and me – to subsidise its failures. Here’s Martin Shovel to explain, better than This Writer managed in my previous article:
Troubled engineer Carillion introduced tougher rules that protect bonuses paid to bosses – just months before it was embroiled in an accounting crisis that wiped £600 million off its shares.
The firm changed the wording of its pay policy to make it harder for investors to claw back bonuses paid to executives in the event it ran into financial difficulty.
Essentially, this means that executives would have to be guilty of fraudulent behaviour rather than just the more general failure of the firm.
In recent days Carillion has been under pressure from investors to recoup some of the millions of pounds in bonuses paid to former chief executive Richard Howson and ex-finance chief Richard Adam when they were in charge.
A probe by the Mail has found that previously bosses could have been forced to hand back their annual bonus and share awards in ‘circumstances of corporate failure’.
This week alone shares in Carillion have plummeted by around 22 per cent [Image: Reuters].
Isn’t that a contradiction in terms?
Back in the 1980s, Margaret Thatcher sold us a pup. She told us private companies could run public services more cost-effectively than government. Either she was badly mistaken or she was lying.
Most voters believed her, though, and in the decades that followed, she and her successors have sold off as many public utilities and services as they could, hiring private contractors in to run crucial aspects of most of the others.
The Carillion case is indicative of what happens next.
The outsourcing company, which has maintenance contracts in the NHS, a contract for work on the HS2 rail link, contracts with the Ministry of Defence, and is a major supplier of rail infrastructure, is in serious financial trouble.
So these banks – who were themselves bailed out with public money when they caused the financial crisis that led to the Great Recession 10 years ago – are now saying they need the public to bail out this private company, because they won’t.
It is the most damning evidence possible that privatisation of public services is a failure.
The idea of privatisation was that the public wouldn’t have to pay for services. Instead, it seems we are being asked to pay time and time again.
We bailed out the banks once; now they want us to bail them out again, repaying their loans to Carillion.
No! Let the company go out of business and take the contracts back in-house.
Oh, but the Tories probably can’t manage that because the state no longer has the wherewithal to carry out that kind of work. Typical Tory short-sightedness.
Another brilliant example of the same stupidity is rail privatisation. Private companies took over rail services in the 1990s, and we were led to believe that this would lead to better services, with profits being ploughed into infrastructure and other improvements. Instead, the public subsidy has skyrocketed and so have fares; 70 per cent of our rail companies are owned by foreign concerns (some of them, ironically, nationalised) which means we are subsidising rail services abroad rather than funding improvements here, and those that aren’t seem to be in permanent financial difficulties, meaning more public money is used to bail them out. Look at the Virgin East Coast franchise.
Do you call that value for money? Because I don’t.
It should be no surprise that Chris Grayling is the transport secretary who has admitted Virgin overbid for the East Coast franchise. The company offered to pay too much and that is, we’re told, why it is in financial difficulty now. The same thing happened with the probation service when Mr Grayling was justice secretary.
The social media commentariat have been on the case, of course, so I refer you to a few people who understand the situation better than myself – for the benefit of those who won’t just take my word for it:
Banks incl. Lloyds, RBS, Barclays & HSBC reject Carillion's rescue plan and seek govt bailout out for the beleaguered outsourcing giant https://t.co/3vBlZfHr3D
Carillion was teetering on the brink from July onwards, but the govt. awarded them 2 contracts in Nov worth £320m. They have £300m missing from their pensions obligations. Any govt. bail out means socialism for corporations, austerity for the rest of us.
#Carillion, well known for #blacklisting trade unionists, runs: – 50 prisons – 8,675 schools – 200 operating theatres – 11,800 inpatient beds Private companies have no business running our essential services; #Labour's policies on public ownership & control the only answer #JC4PM
If the Tories can't find money for patients dying in hospital corridors then a Carillion bail out simply can't be an option. The only option is public ownership. We tried it the other way and it's failed. The need for government change is greater than ever. https://t.co/G1BPGRf2is
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