Lessons to learn BEFORE Accountable Care Organisations are operating

Professor John Colley of Warwick Business School says Carillion was sunk by two serious mistakes:

“Too many contracts were taken at poor margins and terms, which prevented any subsequent profitability under competitive pressure. Some were allocated during the recession when it was win work at all costs.

“The other key issue is project accounting, which tends to recognise losses late in the project, effectively when the project starts to run out of money. There will no doubt be serious retrospective scrutiny of the accounting.”

and

Guardian columnist Simon Jenkins:

What the Carillion saga demonstrates is the rampant indiscipline in the contracts themselves. The company’s demise is attributable to favouritism, cost escalation, excessive risk, obscene remuneration and reckless indebtedness. Carillion and its bankers clearly thought it too big to fail. Whitehall behaved accordingly. It was like a pre-2008 bank.

There must now be a review of how privatisation is working. Its so-called parastatal companies are not true private entities. They depend on the state, and the state depends on them. Their lobbyists develop an unholy relationship with ministers and officials – witness the uncontrolled revolving door between Whitehall and the boardrooms.

and

Peter Kitson, Partner at law firm Russell-Cooke, says Carillion may have caused its own demise by pitching its services at an uncompetitively low rate – to win business.

”The procurement rules (the Public Contracts Regulations) which govern public sector procurement are central to understanding what has happened here. Almost all Carillion contracts have been competitively tendered under those procurement rules.

The rules require public sector clients to investigate and possibly to exclude any tenderer whose bid is ‘abnormally low’. One contributory factor here may be that Carillion has tendered at very low margins, possibly unsustainably low, in order to win these huge volumes of work.

If such bids have succeeded, that can only mean either than the Regulations themselves are ineffective or that public sector clients lack the confidence or the expertise properly to enforce those rules.

Following this morning’s announcement, I am sure that many of those public sector clients will be seeking advice on the extent to which those same procurement rules allow short term emergency replacement contracts to be let without formal procurement.”

https://www.theguardian.com/business/live/2018/jan/15/carillion-crisis-liquidation-last-ditch-talks-fail-business-live