Officials ready to rejig poor contracts, says UK government chief executive

By on 04/02/2018
John Manzoni, chief executive of the Civil Service, being interviewed by Matt Ross.

UK civil service chief executive John Manzoni hinted last week that the government might wish to revisit some poorly-functioning private sector delivery contracts, in the wake of the high-profile collapse of major contractor Carillion.

In recent years, he told an audience at the London School of Economics, the civil service has been improving its commercial capabilities “to enable us to have intelligent dialogue and to structure intelligent relationships with the private sector.

“Without it, we are left relying on transactional, price-based relationships which can be sub-optimal for both parties in the long run,” he said. “And some of those contracts still exist today, from before we began rebuilding our commercial skills. Here we should be open to a discussion with industry about how best to proceed.”

We want both to ensure good value for the taxpayer and to have a healthy, profitable and diverse private sector, competing for government business. Where that balance isn’t working well, we need to sit down and discuss it.”

Reforms offered security

Manzoni also argued that recent reforms to commercial capabilities had enabled the government to maintain public services in the wake of Carillion’s 15 January collapse: “This was only possible by utilising the cross-government capability we have built up in the commercial function,” he said. “If this had happened two years ago, we would not have had the expertise or cross-government structure to manage it.”

The headquarters of Carillion plc in Wolverhampton (Image courtesy: John M).

Recent contracts, he added, have been designed to ensure that services continue even if a key supplier goes into liquidation. “The majority of the large contracts are let to joint ventures – primarily to mitigate the risk of single point failure.”

When it became clear that Carillion was in trouble, he explained, officials “revisited those arrangements to ensure that all parties were comfortable with the joint liability arrangements within the joint ventures. I am pleased to say that in the majority of cases so far the joint venture partner has stepped in exactly as provided for, to ensure the continuity of the service and employment.”

Balancing act

The government has been criticised for continuing to award Carillion contracts after the supplier had begun issuing profits warnings – but Manzoni argued that the civil service had to walk a fine line.

“The vast majority of government service contracts were profitable for the company, and we were ensuring that nothing the government did during this period exacerbated the difficulties it faced,” he said. “In such a situation, any company is of course more watched and more sensitive than in normal circumstances. So the government has a balance to find: it must be careful, on the one hand, not to award contracts if we feel the company cannot fulfil its obligations; but, on the other, it must not precipitate problems by signalling to the market that the company is unfit to continue to tender for government business.”

Bigger questions

Nonetheless, said Manzoni, “this case raises the question of how government should use the private sector in the delivery of public services.”

“I believe that the right answer is a more sophisticated relationship that puts risk in the place where it can be managed best and provides sufficient margins, commensurate with the risk, to ensure value for the taxpayer and a healthy, competitive market.

A track-maintenance vehicle operated by Carillion on the main line from London to Swansea (Image courtesy: Chris McKenna).

Given continuing reforms to the government’s commercial functions, he added, “that should be within our grasp.”

In another development, officials held talks last week with professional services company Capita – another major government contractor – after it issued a shock profit warning and announced plans to raise £700m (US$995m) by issuing new shares. Nearly 50% was wiped off the company’s share price following the 31 January announcement.

Manzoni’s comments follow a shift in attitudes to the use of private contracts, both in Westminster and among the public. The 2010-15 Tory-LibDem coalition was highly critical of their Labour predecessors’ approach to Private Finance Initiative (PFI) schemes, many of which have left public bodies with very high costs for interest, maintenance and additional services. The coalition replaced PFI with the reformed PF2 programme – but Jeremy Corbyn’s Labour Party has since promised to review the government’s entire private finance portfolio, bringing contracts back in-house “where necessary”.

About Matt Ross

Matt is a journalist and editor specialising in public services, policymaking, government and management. He was the editor of trade title Civil Service World from 2008 to 2014, serving an audience of senior UK officials; and the features editor of weekly news magazine Regeneration & Renewal between 2002 and 2008, covering urban regeneration, economic growth and community development. He has also been a motoring and travel journalist, and now combines his role as editorial director of Global Government Forum with writing for other publications including The Guardian and Planning magazine.

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