Public perceptions of Carillion collapse

” The parliamentary select committee report pulls no punches in blaming the greed of the Carillion executives, who gouged out millions from the business up to the moment of collapse, with £1.5bn owed to creditors and £0.5bn to the pension fund (Carillion fall blamed on hubris and greed, 16 May). The wider issue, for all financial institutions, is the greed of the “big four” auditors, paid £72m, who colluded with the directors, gave no warnings and signed clean certificates. Surely the executives and auditors should pay all the creditors in full. At what point does the “cosy relationship” become a criminal fraudulent conspiracy? As Polly Toynbee argues, the people want their money back from the fat cats, not slippery apologies. Are the supine regulators part of the conspiracy or will they bring charges?
Noel Hodson
Tax Reconciliations, Oxford

• We in the west criticise Putin’s Russia as a “kleptocracy”, but the damning report into the collapse of Carillion shows that something similar exists in too many of the boardrooms of British companies. Time and again we read reports of chief executives and their boardroom cronies, to quote Frank Field, “stuffing their mouths with gold”, while their companies go to rack and ruin with thousands thrown out of work and pension schemes impoverished. There is a word for people who appropriate other people’s money: “thief”. If boardroom larcenists can steer clear of the law and go unpunished, it is surely time that the law was changed.
Ron Mitchell
Coventry

• A simple solution is to ban the auditors of all public companies from undertaking any consultancy or other non-audit work. We need specialist audit firms and totally separate consultancy organisations so that audit opinions are not influenced by potential consultancy fees.
Jim Michie
Chester

The government’s culpability and responsibility for the collapse of Carillion and its consequences is broader and deeper than your article and the select committee’s report suggest: the government’s insistence that its estate be constructed and managed through prime contract procurement strategies increases the risk of prime contractor default and its disastrous consequences, as well as increasing the cost of everything it purchases. There was a time when local builders or suppliers would deal direct with their local government client: now we must go through a pyramid of consultancies, all adding 20% and “retaining” 10%.
Michael Heaton
Warminster, Wiltshire

• If a benefits claimant makes a fraudulent claim they may end up in court for their abuse of public funds. When I read about the way in which public money has been handled by Carillion, I find myself wondering when we can expect the court appearances of the directors and their accountants.
Stephen Decker
Chelmsford, Essex”

https://www.theguardian.com/business/2018/may/17/carillion-and-britains-modern-kleptocracy

“NHS England and Capita misunderstood the risks in outsourcing primary care support services …” says hard-hitting report

Summary:

NHS England and Capita misunderstood the risks in outsourcing primary care support services resulting in services to 39,000 GPs, dentists, opticians and pharmacists that were a long way below an acceptable standard. Capita’s performance against the contract has improved but widespread failures are still being experienced by primary care practitioners, says today’s report by the National Audit Office (NAO).

In August 2015, NHS England entered into a seven-year, £330 million contract with Capita to deliver primary care support services. NHS England aimed to reduce its costs by 35% from the first year of the contract and provide a high-quality and standardised service. Capita expected to make a loss of £64 million in the first two years of the contract, which it planned to recoup in later years.

NHS England’s decision to contract with Capita both to run existing services but also simultaneously to transform those services, was high risk. Capita was incentivised through the contract to close existing services to minimise its losses but the interaction between running, closing and transforming services was more complex than Capita or NHS England had anticipated.

Performance issues emerged in 2016 shortly after Capita started closing primary care support offices and making other changes to the service. Capita acknowledges that it made performance issues worse by continuing to close support offices in summer 2016 even though it was aware the customer service centre was struggling to meet demand at that time. NHS England was contractually unable to stop Capita’s aggressive office closure programme, even though it was having a harmful impact on service delivery.

Failure to deliver key aspects of the end-to-end service, delivered by Capita and other organisations, impacted primary care services and, potentially, put patients at risk of serious harm. For example, 87 women were notified incorrectly that they were no longer part of the cervical screening programme; processing issues led to an estimated 1,000 GPs, dentists and opticians being delayed from working with patients and some of these practitioners lost earnings. No actual harm to patients has been identified.

Users continue to experience poor delivery with seven severe service failures in February 2018. A number of organisations have contributed to underperformance as Capita relies on other organisations to provide some services.

NHS England has made savings, in line with expectations, of £60 million in the first two years of the contract, as the financial risk of increased costs sits with Capita who have made a £125 million loss over this period. To date, NHS England has deducted £5.3 million from payments to Capita as penalties for poor performance but it expects it may have to pay up to £3 million in compensation to primary care providers.

NHS England has not yet secured all the benefits it wanted to achieve as Capita’s transformation programme was halted while it focused on operational issues. NHS England remain concerned about three of the services – the national performers lists, payments to opticians and GP payments and pensions but recognises that some of the issues with them pre-date the contract with Capita.

Two and a half years into the contract basic principles are still not agreed, which limits NHS England’s ability to hold Capita to account. NHS England and Capita have still not agreed how to calculate 11 performance measures, and how these data should be used to calculate payments owed to Capita for delivering the services.

The NAO recommends that NHS England should determine whether all current services within the contract are best delivered through that contract or be should taken in-house by NHS England.

“Neither NHS England nor Capita fully understood the complexity and variation of the services being outsourced. As a result, both parties misjudged the scale and nature of the risk in outsourcing these services. “While NHS England has achieved financial savings and some services have now improved, value for money is about more than just cost reduction. It is deeply unsatisfactory that, two and a half years into the contract, NHS England and Capita have not yet reached the level of partnership working required to make a contract like this work effectively.”

Amyas Morse, the head of the NAO, 17 May 2018″

https://www.nao.org.uk/press-release/nhs-englands-management-of-the-primary-care-support-services-contract-with-capita/

Full report here:

Tories nationalise East Coast Main Line Railway

Virgin wasn’t making enough money so they decided they didn’t want to play any more:

http://www.bbc.co.uk/news/business-44142258

Labour comment was priceless:

“Good to see Grayling implementing first stage of Labour’s Manifesto promise to renationalise the railways. I think I’m right in saying that he’s now nationalised more railways than any Labour minister in 6 decades. Come on Chris, East Coast line today, the whole system tomorrow.”

Privatisation and outsourcing: beware ‘delusional’ directors, blind auditors and absent regulators

“Frank Field, chairman of the Work and Pensions Committee, said: “A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners.”

For a longer and even more critical report published after this article, see:
http://www.bbc.co.uk/news/business-44129678

“The directors of Carillion should be formally investigated after overseeing a “rotten corporate culture” and may warrant disqualification from holding boardoom roles in the future, a House of Commons inquiry has concluded.

A damning 101-page report into the collapse of the public services contractor, undertaken by the joint business and work and pensions select committees, has identified failings by regulators, the accountancy firms KMPG and Deloitte and the government, as well as the company’s directors.

The government called the Official Receiver into Carillion four months ago after banks and investors refused to support the group, which had annual turnover of £5 billion and 43,000 employees. It collapsed with £2.6 billion of pension liabilities and about £2 billion of debts with suppliers and lenders. Its demise left serious issues over the delivery of maintenance, catering and cleaning contracts in schools, hospitals and military bases.

The company blamed its financial crisis on failing construction contracts, including those to build hospitals in the West Midlands and on Merseyside, a new motorway in Scotland and developments in Doha ahead of the 2022 World Cup finals in Qatar.

The MPs’ report recommends that:

•The Insolvency Service investigate “potential breaches of duties under the Companies Act” and claims of “wrongful trading” that could lead to “action for disqualification as a director”;

•The intervention powers of the Financial Reporting Council should be beefed up and its remit be extended to company directors that are not accountants;

•The Competition and Markets Authority should investigate the Big Four accountancy firms and consider that they be broken up;

•The Prompt Payment Code for suppliers should be reviewed after Carillion’s flagrant abuse of it;

•The “Crown representative” system used to oversee large public services contractors should be reviewed after it appeared to pick up no warning signals about Carillion’s financial crisis;

•The leadership of The Pensions Regulator should be is shaken up to make sure that it takes “harsher sanctions” against companies such as Carillion that fail to properly fund their retirement schemes.

The damning report will cast a shadow on the careers of the grandees on the Carillion board: Philip Green, the former United Utilities and P&O boss who was chairman; and Keith Cochrane, the former chief executive of Weir Group who was Carillion’s senior independent director.

There were criticisms, too, of Alison Horner, Tesco’s head of personnel, over her role as chairwoman of Carillion’s executive pay committee. Senior executives Richard Howson, Richard Adam and Zafar Khan were all sharply criticised.

Mr Green, who is called “delusional” in the report, criticised the MPs’ inquiry. “The report fails to understand and accurately reflect the true, more complex picture of events,” he said.”

Source: The Times (pay wall)

Tories to nationalise rail line!

Owl says: well, this will take some explaining!!!

“Chris Grayling is expected to make a decision “within days” to end the existing East Coast rail franchise operated by Stagecoach and Virgin Trains.

The transport secretary was said to be preparing to either renationalise the London to Edinburgh line or negotiate a “not-for-profit” arrangement with Stagecoach and Virgin Trains before the end of the week. …

Ministers have denied that the companies are being bailed out, saying they will lose a £165m performance bond and face other penalties. Beyond 2020, the government is expected to introduce a new public-private partnership model on the line.

Virgin Trains East Coast said it had “met or exceeded” all of its contractual commitments on the East Coast line. The DfT declined to comment.”

https://www.theguardian.com/business/2018/may/14/east-coast-rail-franchise-to-be-scrapped-chris-grayling

How privatisation and outsourcing of public services fails

And, at the time, directors changed rules so they would get more protection from the losses.

“Carillion used suppliers to “prop up a failing business model” and conceal true levels of debt, say MPs investigating the failed government contractor.

The parliamentary inquiry into the collapse of a company that provided a host of vital public services, including catering in schools, prison maintenance and construction of new NHS hospitals will conclude on Wednesday with the publication of the MPs’ final report. It is expected to name and shame those responsible for the failure of the listed company, which had a UK staff of nearly 20,000 when it crashed into administration in January.

Carillion bosses displayed ‘greed on stilts’, MPs claim

In a taste of what is to come, the work and pensions committee chairman, Frank Field, said: “Carillion displayed utter contempt for its suppliers, many of them the small businesses that are the lifeblood of the UK’s economy.

“The company used its suppliers as a line of credit to shore up its fragile balance sheet, then in another of its accounting tricks ‘reclassified’ this borrowing to hide the true extent of its massive debt.”

Field’s comments came as the joint inquiry with the business, energy and industrial strategy committee, published evidence from Santander, the bank that operated the company’s early payment facility. Its loss was one of the events Carillion’s directors attempted to blame for its eventual failure.

However, in the letter the Santander chief risk officer, Patricia Halliday, sets out why the bank pulled the plug on the facility in December 2017. In the wake of a profit warning that summer, Halliday said Santander had worked with other banks on a refinancing plan contingent on the company making disposals.

“Despite the provision of these new money commitments and continued close engagement with Carillion into December, the envisaged disposals did not take place and the detailed business and restructuring plans originally expected to be received by 8 December were further delayed,” Halliday writes. “This series of events … further undermined Santander’s confidence in Carillion’s financial position.

“In light of the lack of progress with the restructuring plan, Santander took the decision to terminate the … facility,” she adds. …”

https://www.theguardian.com/business/2018/may/14/carillion-displayed-utter-contempt-for-suppliers-frank-field

What a surprise! “Outsourced public services ‘still not adopting ethical standards’ “

“Little significant progress has been made on reinforcing ethical standards in outsourced public services, a Lords committee has cautioned.

It also suggested a consultation be set up looking at whether the Freedom of Information Act should apply to private sector providers working on public sector contracts, the Lords committee on standards in public life also said in report out yesterday.

Chair Lord Bew noted “very little progress” had been made on implementing the recommendations of the committee’s 2014 report, aimed at enhancing the ethical standards of contractors commissioned by the public sector.

“Disappointingly, very little progress has been made on implementing these recommendations and evidence shows that most service providers need to do more to demonstrate best practice in ethical standards,” Bew said.

He called for services providers to “recognise that the Nolan Principles apply to them, for moral courage among key financial and other professionals in securing and maintaining high ethical standards”.

The Nolan Principles were drawn up in 1995 and are seven ethical standards people in public office are expected to uphold: selflessness, integrity, objectivity, accountability, openness, honesty and leadership.

Bew added: “Some [service providers] remain dismissive of the Nolan Principles or adopt a ‘pick and mix’ approach which is not in the public interest.”

The committee noted one-third of government spending is on external providers and that “the public is clear that they expect common ethical standards”. But some providers were not applying these public sector ethical standards in their work, the Lords concluded.

Bew said the committee called for a “consultation on the extension of the application of the Freedom of Information Act to private sector providers where information relates to the performance of a contract with government for the delivery of public services”.

The committee recommended that service providers should acknowledge the Nolan Principles applied to them.

Bew also said: “The committee remains of the view that more must be done to encourage strong and robust cultures of ethical behaviour in those delivering public services.”

The CSPL report suggested commissioners of services should include a ‘statement of intent’ in addition to contracts to set out the ethical behaviours expected by the government.

In the light of the collapse of Carillion, the committee suggested it is “essential” that ethical standards are reinforced for those delivering services with public money.

The report released yesterday is one in a series being done by the committee on ethical standards of providers of public services.”

https://www.publicfinance.co.uk/news/2018/05/outsourced-public-services-still-not-adopting-ethical-standards