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Spectator Money

Carillion’s catastrophe is not a parable of the evils of outsourcing

19 January 2018

5:53 PM

19 January 2018

5:53 PM

This is an extract from Martin Vander Weyer’s ‘Any other business’ column in this week’s Spectator. 

Carillion is a disaster on all fronts, but my sympathies go first to the fallen contracting giant’s sub–contractors. Upwards of 30,000 smaller firms were already facing 120-day payment delays and may now have to fight court battles to get paid at all, driving many hard-pressed entrepreneurs to bankruptcy. But the political spotlight won’t help them, because Labour spokesmen who despise small business as well as large will merely use the case to attack the concept of outsourcing public services for private-sector profit.

And that debate will continue to miss the central point that Carillion has not crashed because it held too many school-meal contracts, but because of delays and cost overruns in civil engineering projects such as the Aberdeen bypass and big new hospitals in Birmingham and Liverpool. Civil engineering businesses traditionally tend to be undercapitalised, relying on debt to manage the hair-raising cashflows of their project portfolios. Carillion was formed from many such businesses — starting in 1999 with the construction arms of Tarmac and Wimpey and adding Mowlem, McAlpine and others — but instead of gaining strength through amalgamation, it multiplied risk.

Carillion’s catastrophe is not a parable of the evils of outsourcing, which remains the best value-for-money mechanism for many kinds of service delivery in both public and private sectors. Rather it’s a cautionary tale of lax financial control in over-expanded conglomerates. The best outcome now for some of its constituent firms would be to re-emerge from the rubble as independent operators — offering government a wider, safer range of contractors from which to choose.

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