Carillion

Lord Lea of Crondall Excerpts

Monday 15th January 2018 Lords Chamber

[Lord Young of Cookham]

My Lords, I am grateful to the noble Baroness. It is worth making the point that of the seven contracts that were let post July, six were joint ventures; in other words, there was joint and several liability to undertake the work if one of them collapsed. In the case of HS2, which was the largest at £1.4 billion in total, Kier has already announced this morning that it has put in place contingency plans to ensure continuity of service. The two MoD contracts were joint ventures, as were the two HS2 ones, and so was the Network Rail contract to Carillion Powerlines. Only one relevant contract was not a joint venture where Network Rail is now transferring the work to another framework contractor.

However, the noble Baroness has made a good point. When one assesses who has won a tender, one has to do it against a number of set and published criteria. If you do not, you are up for judicial review. One of those criteria is financial stability. Clearly, whatever the test was back in July, it was passed. It relates to a point made by my noble friend Lord Lawson, which is whether one should take this opportunity just to stand back and look at whether the criteria used for assessing financial stability are correct and robust enough or whether they need firming up.

[Lord Lea of Crondall (Lab)]

My Lords, is not a picture emerging of some prima facie creative accounting going on? The noble Lord, Lord Lawson, makes a fair point when he suggests that not every contract should come directly from the Government. The picture now is that in almost everything done by Wimpey, Costain and so on, they are called subcontractors, and that applies to the workforce as well. Does the inquiry not need to cast a beady eye over how far the culture of subcontracting everything—much more so than was true previously in the construction industry—is part of the background to this problem because no one can take an overall view of what is happening on the balance sheet?

[Lord Young of Cookham]

That is quite a complicated question. One can make a good argument for having subcontractors—namely, people who specialise in a particular discipline and compete against each other for contracts, rather than one company trying to cover the whole spectrum of services. Many very successful industries are built on a structure of contracts and subcontracts. Noble Lords need look only to the airline industry to see a whole range of contracts: companies lease the aeroplanes and subcontract baggage handling and catering and so on, and, on the whole, it is a satisfactorily run industry. I would not want to get drawn into conclusions about what structure is the right one for a particular industry. On the question of accounting, I should have said that the FCA and the FRC are both conducting their respective inquiries—one, I think, into audit, and the other into statements that were made or not made about the company’s prospects. These particular aspects are being looked at by the relevant authorities.