The head of the public sector spending watchdog has defended the Cabinet Office’s handling of the Carillion crisis.
Amyas Morse, comptroller and auditor general at the National Audit Office, said CO did not “come off badly” from the incident and made a “strong decision” in not bailing the company out – a decision he said might might not have been made a few years ago.
Speaking at the Public Sector Show, Morse said: “I don’t think the public sector came off badly out of Carillion in many ways, and the reason for that is we didn’t put money into Carillion to prop it up. I think that was a strong decision; maybe a few years ago it wouldn’t have been like that.
“People from the Cabinet Office, when they saw the profit warning in the summer, they did a lot of work to plan service continuity on public sector contracts and they spent a lot of time examining and being in contact with Carillion.”
Morse also praised the use of “forward contracting”, where a group of partners separate from the contract winner agree to step in if something goes wrong with the contract winner. “This was the case on a number of the construction contracts on Carillion, that other major construction companies had committed to take up the slack on those contracts on largely speaking the same terms, and for the most part they did that.”
He added: “I have to honestly say there are some good things that I’d have to testify I’d seen that wouldn’t have happened a few years ago.”
The collapse of Carillion had raised concerns, both within CO and parliamentary committees including the Public Accounts Committee (PAC), that major public sector contracts were focusing too much on price and were encouraging contractors to underbid, making them commercially unsustainable.
But Morse said a lot of Carillion’s commercial problems were not the result of public sector contracts, pointing instead to the company’s over-borrowing and losses in the Middle East, and while the realities of slim margins in the construction sector were “undoubtedly true”, they were “not a particular to the public sector”.
However Morse did say the public sector should start being “a bit more challenging” of contractors. “It’s right that before you let somebody have a vital part of the public sector to run, that you should ask them some searching questions,” he said.
He added that the UK had been “a little bit too keen on sticking to the procurement rules from the EU”, and said other European countries were interpreting public procurement rules in a “slightly more liberal” and “less law-abiding” way that focused more on protecting value.
The official NAO review of the government’s handling of Carillion, published earlier this month, pointed out that government felt they were unable to exclude the firm from competitions under public procurement rules despite the firm’s financial situation. The report also said Carillion’s profit warning took the CO by surprise, but it was much less critical of the CO’s handling of the company’s corporate risk than an earlier PAC report.
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