The collapse of Carillion has raised concerns about the government’s management of major suppliers, a group of MPs have said.
Meg Hillier, chair of the Public Accounts Committee (PAC), said a review of the government’s risk assessments of Carillion showed missed opportunities to deal with problems in the business.
“The Carillion papers identify clear and compelling problems with the business in the months leading to its collapse. Government had the opportunity to deal with them,” she said.
PAC was given access to government risk assessments of strategic suppliers in January as a result of Carillion’s collapse.
In a report released today examining the risk assessments of Carillion, PAC found the government did not appear to be aware of the firm’s financial difficulties until Carillion issued its first profit warning in July 2017. This was despite government’s “close relationship” with the firm, the report said.
The report said despite being rated amber on the government's traffic light rating system for a number of months – owing to its performance on Ministry of Defence and Ministry of Justice contracts – it was only after the July profit warning that Carillion was downgraded to red.
The report also found that the Cabinet Office (CO) did not act on an official recommendation in November that Carillion be downgraded again to a black “high risk” status. It said the CO never confirmed the new designation following a submission by Carillion. Carillion collapsed two months later.
Sir Geoffrey Clifton-Brown, deputy chair of PAC, said the the government’s traffic light rating system appeared to be “slow and clunky”. “Profit warnings for Carillion were issued in July and September 2017 and yet a high-risk recommendation to ministers was not made until 29 November 2017,” he said.
“The City, in contrast, knew well before July 2017 that Carillion was in trouble.”
The CO said it has already taken action to diversify its supply chains and that government continually monitors the financial health of its strategic suppliers.
A CO spokesperson said: “Our priority has been the continued, safe running of public services and to minimise the impact of Carillion’s insolvency. The plans we put in place have ensured this.
“We engaged closely with Carillion's board members for a number of years and this remained the case after the profits warning in July 2017.”
The spokesperson added it was “not right” for taxpayers to bail out a private company.
The report said PAC has chosen not to publish risk assessments from other strategic suppliers, but that it reserved the right to do so. It added that it would take evidence over the coming months about concerns previously raised about the government’s relationship with strategic suppliers.
Hillier is expected to make a statement to Parliament about the report on Thursday.
☛ Want to stay up to date with the news? Sign up to our daily bulletin.