Lessons from the collapse of Carillion

The subject for this debate was determined by the Backbench Business Committee, in response to a request from Rachel Reeves MP.  In her bid to the committee, she noted that it is now some six months since the collapse of Carillion and that five select committees have looked into this area. 

This page brings together a number of reports that provide information on Carillion’s collapse and lessons from it.

Carillion’s collapse

The Library briefing The collapse of Carillion (March 2018) discusses the causes and immediate consequences of Carillion’s collapse.

The National Audit Office’s Investigation into the government’s handling of the collapse of Carillion (June 2018) examines issues including the government’s contingency planning for Carillion’s possible failure, the government’s response to Carillion’s request for support and Carillion in liquidation.

Regulation and audit

The Work and Pensions Committee and the Business, Energy and Industrial Strategy Committee held a joint inquiry into the collapse of Carillion, exploring the management and governance of Carillion, its sponsorship of its pension funds, and the implications for company and pension scheme law, regulation and policy.  

They published their report, Carillion, in May 2018. When the report was published, Frank Field, Chair of the Work and Pensions Committee, said:

“Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners. They rightly face investigation of their fitness to run a company again. This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn. Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”

Rachel Reeves, Chair of the BEIS Committee, said:

“Carillion’s collapse was a disaster for all those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival. The company’s delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company.

“However, the auditors should also be in the dock for this catastrophic crash. They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems. The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.

“KMPG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion. It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny. The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.

“The collapse of Carillion exposed terrible failures of regulation. The Government needs to stop dithering and act to ensure regulators are up to the job of intervening before companies fail, rather than trying to pick up the pieces when it is too late.”

The two committees continue to probe the issues raised in the report and have since published further correspondence.

Pensions

The Library briefing Carillion Pension Schemes looks at the position of the pension schemes, the regulatory framework, the role of the trustees and the role of the Pensions Regulator.

Insolvency

The Library briefing Corporate insolvency: consultations on reform examines three government consultations on insolvency and corporate governance.  These seek views on improving arrangements, ensuring that lessons are learned from large company failures.

Public sector procurement

The Public Administration and Constitutional Affairs Committee looked into the implications for public sector procurement – publishing a report After Carillion: Public sector outsourcing and contracting (9 July 2018). 

When the report was published, the committee chair, Sir Bernard Jenkin, said:

“It is staggering that the Government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

Public trust requires that outsourcing better reflects public service values. The Government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.”

Separately, the Public Accounts Committee are currently holding an inquiry into strategic suppliers – these are suppliers with whose revenue from Government exceeds £100m per annum and/or who are deemed significant suppliers to Government in their sector.  The committee is exploring the way in which Government interacts with strategic suppliers, and whether delivering public services through them represents good value for money for the taxpayer.

The National Audit Office report mentioned above, Investigation into the government’s handling of the collapse of Carillion, also looked at Carillion’s role as a supplier to government, including the Cabinet Office’s monitoring of Carillion strategic suppliers.  Commenting on the report, Sir Amyas Morse, the head of the National Audit Office, said:

“When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts. Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened. Government has further to go in developing in this direction.”

The Liaison committee held an evidence session on the Cross-government response to the collapse of Carillion in February.  Following that session, David Lidington, Minister for the Cabinet Office, wrote to the committee with some further information, including a list of Carillion’s contracts and headline statistics on the government’s strategic suppliers.