“Dysfunctional market”: Serco part-blames government for Carillion collapse

In pointed criticism of its major client, the outsourcing giant Serco today said the collapse of Carillion was partly the UK government’s fault, and that only the "dumb and the desperate" would bid for harsh public sector contracts.

Writing in newspaper The Telegraph today, Serco chief executive Rupert Soames said ministers could not escape "some responsibility" for forcing companies to take big risks when carrying out contracts.

He said long-term fixed-price contracts could be made unprofitable by unexpected changes such as the increase in the minimum wage, and said the deals could be "punitive" and very costly to exit, which meant the market was dominated by large conglomerates.

"Government, as the sole customer, cannot escape some responsibility if the result is a dysfunctional market, in which only the dumb and the desperate want to compete," Soames wrote.

Heavily indebted Carillion, which employed 43,000 people including 20,000 in the UK, went into compulsory liquidation a week ago after failing to secure a government-backed credit lifeline.

It held many public sector contracts, from helping construct the HS2 rail link to delivering school meals, maintaining prisons and building hospitals.

In his article Soames admitted how Serco faced similar issues in 2014, wiping £1.5bn off its balance sheet and taking £450m of losses on Government contracts – but had "made it through the valley of the shadow of death".

Soames rejected arguments advanced by the opposition Labour Party that services ought to be brought back under direct ownership and management of the public sector.

Monopolies, he said, "always become inefficient and focused on protecting their own interests, rather than those of their customers".

Soames did not lay all blame on government, however, saying that banks were letting some firms accumulate unsustainable levels of debt.

He said a balance must be struck on public sector outsourcing, which is Serco’s main business.

"We need to bring it back to centre if suppliers are going to want to work for Government to deliver public services," he said.

"And suppliers need to stop over-promising and under-performing, stop accepting risks they know they cannot manage, and be more transparent and accountable."

Image: Heavily indebted Carillion employed 43,000 people before its compulsory liquidation on 15 January 2018 (Carillion)

Story for GCR? Get in touch via email: [email protected]

Latest articles in News