Public works need to develop a more diverse supply chain if we are to avoid another Carillion catastrophe, writes Russell Curtis
The carrion crows are circling Carillion. The outsourcing leviathan, having previously gorged itself on contracting giants Tarmac, Mowlem and Alfred McAlpine, now looks to have its corpse picked apart by rivals, while smaller businesses, reliant on it for work, struggle to come to terms with the fact that they might not see much—or indeed, any—of the hard-earned cash they are owed.
In hindsight it’s easy to criticise the circumstances which led to this collapse, and the reasons for Carillion’s liquidation will no doubt be examined extensively over the coming months.
But even before its financial woes became apparent last year, it was clear to many that – regardless of the financial risks of bidding for contracts with razor-thin margins, an over-reliance on public work and a complex web of businesses spread across numerous disparate sectors – there were many questions over whether it was proper for a single organisation to be gatekeeper for so much work, holding the purse strings of huge amounts of public cash. How can anyone have thought that the provision of such diffuse services could ever lead to anything approaching good value?
Well, it’s now apparent it wasn’t: Carillion racked up the debts of a small nation. The notion that a single company could successfully build HS2 while simultaneously serving school dinners is absurd; no different, perhaps, to the Victorian barber with a sideline in dental surgery: pop in for a wet shave and have your aching molar whipped out for a fraction more.
One hopes that this will mark a watershed moment in UK contracting. Historically, so it seems, public clients have had confidence in big businesses: there was comfort to be had from the knowledge that in awarding a major contract to a corporate giant, not much could go wrong.
Parcelling many small projects into a single big contract was convenient and cost-effective. The accepted orthodoxy was that with size came stability. It’s now apparent that nothing could be further from the truth.
The notion that a single company could successfully build HS2 while simultaneously serving school dinners is absurd
Carillion’s collapse is certainly spectacular, and it may well be turn out to be unique. But serious questions now must be asked about whether it is indeed financially – and morally – responsible to delegate the delivery of myriad public projects and service contracts in the hands of such ginormous bodies.
All such organisations are reliant on an army of smaller ‘tier 2’ firms to actually do most of the work. All that the top-tier firms provide is a complex financial infrastructure that funnels money from the public purse through to small suppliers, creaming off cash in the process.
Such arrangements are inevitably open to abuse: Carillion was caught up in the blacklisting scandal through one of its numerous acquisitions and, more widely, unreasonably long payment terms are rife within the industry. Screwing the supply chain has become a profession in itself. More often than not, the talent and hard work that goes into making projects a success sits further down the supply chain, yet it seems that many public bodies would rather opt for convenience over the complexities of dealing with a diverse and distributed array of suppliers.
Screwing the supply chain has become a profession in itself
One only has to look at the constant flow of giant frameworks to get an understanding of how aggregated the industry is becoming. In the latter part of last year we’ve seen the award of the Crown Commercial Service Framework (total value £2.9 billion, awarded to 31 firms) and the Scape National Construction Framework (total value £7 billion, awarded to just four).
Rather than intelligently matching the right consultant or contractor with an appropriate project, such arrangements allow services to be ‘called off’ without going through a further rigorous procurement process. Those winning organisations are free to distribute the work to their network of suppliers without the inconvenience of independent scrutiny or oversight. This can’t be healthy, and the fallacy that such agglomerates provide the public purse with financial security has now been exposed as a sham.
This isn’t to suggest that there’s not a need for colossal contractors, of course. London’s Crossrail, one of the world’s most ambitious engineering projects, will be an outstanding success. This is in no small part to an impressive collaborative effort between various giants of engineering. But in this case the team roster is commensurate with the complexity and expanse of the work. For projects of a lesser scale it no longer makes sense to appoint a single provider to deliver quality, surety and value across a broad range of services.
One hopes that we’ve narrowly avoided the prospect of consolidation and agglomeration and instead face a future with a diverse, specialist and varied supply chain, which matches projects with proficiency and project scale with practice size. This will involve a significant cultural and technological shift within the industry, but if we are to avoid another Carillion catastrophe, it can be the only way.
Russell Curtis is founding director of RCKa and director of Project Compass