Inconsistent take-up of Cabinet Office guidelines on outsourcing means government risks “another Carillion”: report

The government risks "another Carillion" if it does not get behind the reforms put forward after the firm’s liquidation, a report from the Institute for Government has warned.

Carillion collapsed in 2018 holding more than 400 public sector contracts.

The IFG report, Carillion: Two years on, claimed that, despite signs of progress, the government had not consistently taken up the Cabinet Office’s guidelines to the way outsourcing contracts are designed, awarded and managed.

Authors Tom Sasse, Colm Britchfield and Nick Davies found that that departments “regularly ignore these sensible guidelines around publication of commercial ‘pipelines’, about how risk is allocated between government and suppliers, and how bids for contracts are selected”.

This meant that the government was “still signing risky contracts which may well collapse”.

The IFG report also noted that the Cabinet Office guidelines do not apply to local government and public bodies, including the NHS, despite those organisations being responsible for more than £100bn of procurement spending.

The report called on the government to:

• Name a Cabinet Office minister who is responsible for improvements in outsourcing.
• Use this summer’s spending review to give the Cabinet Office funding to support and scrutinise contracting by departments.
• Extend contracting training to local government, the NHS, and other public bodies.
• Equip the new Audit, Reporting and Governance Authority with the statutory powers recommended by the Kingman review, including to force changes in company accounts rather than applying to court to do so.

The report suggested that the Cabinet Office had done well to establish its new guidance in Whitehall and roll out training, at a time when the civil service had been under substantial pressure. “The department has improved its relationship with big suppliers, the reforms have wide support from industry and there is some evidence that the guidance is being used directly to change poor behaviour by departments.”

However, many suppliers still complained of poor practice, the IFG said. “Several departments continue to ignore aspects of the new guidance, and many have not updated their internal policies. There is little evidence of improvements to the way government assesses risk and balances cost and quality. And scrutiny of departmental plans is not yet rigorous enough, meaning good practice is still dependent on individual ministers and senior officials.”

It suggested that there was little awareness of the reforms beyond Whitehall, in local government and public bodies, including the NHS. The report said the Cabinet Office currently had no remit or budget to extend the reforms beyond central government.

The report said: “Carillion’s collapse was…. a stark illustration of a rotten corporate culture: the company took imprudent risks, acquired huge debts, and disguised its problems with aggressive accounting practices.

“That the company was able to behave so recklessly for so long demonstrated that the system of checks and balances was wholly inadequate.”

The report noted that Carillion might yet prove a crisis large enough to spur action. It said five inquiries into how to strengthen UK corporate governance had been launched since the company’s collapse; several had returned serious proposals for reform.

“Implementing recommendations from these reviews – and ensuring no company can get away with such behaviour in future – is essential if government is to show it has truly learned the lessons of Carillion,” it said.