Dawnus collapse highlights problems with public outsourcing models
Public sector outsourcing has come under the spotlight once again with the collapse of construction firm Dawnus. Ken Skates, economy and transport minister for the Welsh Government, told assembly members £1.5m was outstanding on a £3.5m loan made to Dawnus by the government before the firm went into administration in March, but he was confident this would be repaid “in due course”.
He said around 455 Welsh suppliers were affected by the collapse and the supply chain was owed around £6m.
Dawnus held a number of public contracts in Wales, including schools, flood defence schemes and the £12m Kingsway redevelopment in Swansea.
The Specialist Engineering Contractors’ (SEC) Group Wales/Cymru described the situation as “not unlike a Welsh Carillion” and called for public bodies to implement project bank accounts, which ringfence cash to pay subcontractors in construction supply chains.
Meanwhile, the GMB union has claimed UK government contracts worth £660m were won by Interserve after the firm issued three profit warnings.
Contracts worth £432m were awarded to Interserve in 2017, with a further £233m awarded last year, according to the GMB and data provider Tussell.
Over the two-year period, the largest contract, worth £67m, awarded to Interserve was by the Foreign and Commonwealth Office in August 2018 to provide facilities management at its main building in London as well as embassies throughout Europe.
Rachel Reeves, Labour MP and chair of the Business, Energy and Industrial Strategy committee, told the House of Commons £90m had been paid to advisers and administrators connected with Interserve: “Why not let the hospitals, schools, local authorities and others take these contracts in-house and manage them in-house rather than have this failed contracting-out model?”
Oliver Dowden, parliamentary secretary at the Cabinet Office (CO), responded: “There is a lot of evidence to show that outsourcing brings genuine efficiency savings and genuine innovation – it can be between 20% and 30%.”
Dowden referred to the CO’s recently released Outsourcing Playbook, which includes advice on allocating risk between the public sector and suppliers, the decision to “make or buy”, and piloting complex contracts before they are rolled out. He also mentioned the government’s policy, which comes into force in September, of excluding contractors that fail to pay their suppliers on time.
Simon Colvin, head of the technology, media and telecoms and sourcing team at law firm Pinsent Masons, said of the Playbook: “Perhaps the biggest challenges to running procurements will be the time needed to put in place some of the best practice tools outlined – such as pilot schemes – and the expertise needed to properly scope outsourcing projects. It will remain important for the extra time needed to be factored into what can be a packed procurement schedule, and for public sector organisations to seek advice as appropriate.”