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After Carillion: Is This UK Outsourcing’s Waterloo or Watershed Moment?

In the lamentable trail of the London’s Grenfell Tower disaster in June 2017 follows another public disaster as Carillion, a large outsourcing and construction services contractor, which had been in financial difficulty from July 2017 with numerous profits warning until January 2018 when it was forced in to compulsory liquidation. The company failed after the senior management failed to beg a financial bail-out from the UK government as it was a provider of many public sector contracts and employed ten of thousands of people. 

This provides further evidence of the sorry state of UK housing provision or its management, construction services and public sector outsourcing which are all riven with decades’ old problems of all types from supply shortages to regulatory bottlenecks (See LDC, August and October 2017).

In terms of UK construction Carillion was the amalgamation of three once great construction firms, the construction divisions of George Wimpey, Alfred McAlpine and Tarmac (previously Mitchell Construction who built the Kariba dam on the mighty Zambesi River a troublesome contract which caused Mitchell to collapse due to financial difficulties in 1970s before being taken over by Tarmac).

It does suggest who can now build the UK’s largest projects, such as HS2 or Thames Tideway Scheme, apart from foreign owned companies? Balfour Beatty, Interserve and Kier are large but not large enough hence all the consortiums in formation- should a UK super builder be created or is that just another disaster waiting to happen?

Furthermore why would any of Britain’s brightest graduates work in a relatively poorly paying industry when the City of London’s magic circle law firms, hedge funds, and private equity houses offer a much more lucrative choice of career without the muddy boots and cold wind.

Whether it’s building roads, schools and hospitals or maintaining them, providing them with catering or cleaning services- these tasks needs to be done effectively and at an acceptable price which is neither profiteering nor suicidal and loss making for the contractors involved.

The opposition Labour Party, or New Old labour, under Jeremy Corbyn and his Chancellor John MacDonnell, rather predictably are criticising the entire private sector involvement and suggesting that public sector contracts should be taken back under direct local or central government control. This would be a huge over-reaction and costly to the UK public finances as wages and pension costs alone would weigh heavily on UK borrowing requirements, interests rates and taxation levels to pay for such a huge directly employed workforce.

There remains a place for private sector involvement in public sector procurement and not just for cost saving purposes either as innovation can be implemented quickly too.  However, without doubt, the entire construction industry needs to buck up and change the adversarial culture over money and margins. People need to focus on producing buildings or running facilities where the company involved has an opportunity to make a profit while providing the required service.

Therefore an investigation in to what went wrong and how to put it right is a reasonable place to start. I really hope this time it makes a difference as enough chaos through poor management has caused harm to people and places throughout the entire UK.

The construction industry needs new ideas and talent to reconfigure and reset its operating habits or bring on the robots and the drones as the human management isn’t up to it.

LDC

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