Interserve

Christian Matheson Excerpts

Monday 18th March 2019 Commons Chamber

[Christian Matheson (City of Chester) (Lab)]

(Urgent Question): To ask the Minister for the Cabinet Office if he will make a statement on the major Government supplier Interserve entering administration.

[The Parliamentary Secretary, Cabinet Office (Oliver Dowden)]

I have been asked to respond on behalf of my colleague, the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster.

As I have said repeatedly to the House, the Government are not responsible for decisions taken by companies in the private sector. What the Government are responsible for is the continued delivery of public services, and I assure the House that has happened in this case. Schools continue to be cleaned, roads continue to be repaired and improved, and services in Government buildings continue to run as normal.

I reassure hon. Members that nothing in Interserve’s refinancing will affect the delivery of public services. No staff have lost jobs and no pensions have been affected. The company has executed a contingency plan that it had prudently developed in case shareholders rejected the proposed refinancing deal. This was a pre-agreed transaction, known as a “pre-pack” administration. Hundreds of pre-pack administrations are performed every year, including by well-known companies. It is a well-established and normal process, typically used when a shareholder is blocking a business’s restructuring.

To be clear, the operating companies responsible for the delivery of all Interserve’s services, public and private, have remained wholly unaffected. As a result of shareholders failing to reach agreement on the proposed refinancing, the parent company—Interserve plc—was put into administration. The operating companies, the companies that actually deliver the services, were then almost immediately purchased by a new company, Interserve Group Ltd.

This new company has been considerably strengthened. It now has a much stronger balance sheet, £110 million of additional cash and a greatly reduced debt burden. It is in taxpayers’ interest to have a well-financed and stable group of suppliers, so this has been a positive outcome for the company’s customers, supply chain and employees.

I am clear on the benefits of outsourcing. Working with the private sector allows us to access expertise and economies of scale that can help us to deliver more innovative public services at better value for the taxpayer. As I have said before, this Government are driven by what works, not by political dogma, and the evidence is clear. Research shows that outsourcing delivers savings of between 20% and 30% compared with bringing services in-house.

However, we recognise there is more we can do to improve how we outsource. We have learned from the collapse of Carillion, and we are implementing changes to our procurement and commercial processes, as the Chancellor of the Duchy of Lancaster and I have set out in several speeches. For example, we have published “The Outsourcing Playbook”, which was developed with industry and outlines a range of measures designed to ensure that outsourcing projects succeed.

We are now asking suppliers of critical contracts to provide detailed information to help to mitigate any risk to service delivery in the rare event of corporate failure. These “living wills” are now being piloted by five strategic suppliers, including Interserve. We are taking action on prompt payment, including excluding suppliers from Government procurement if they cannot demonstrate prompt payment to their supply chain. We are also taking steps on embedding social value in Government procurement, and I launched the consultation last week.

These sensible and prudent steps will help us to ensure that we get procurement right first time, that we identify and remedy financial risks to Government services and that we manage taxpayers’ money in a way that achieves the best value for money. Indeed, the fact we had ongoing engagement with Interserve throughout this process, through our Crown representatives and the Government commercial function, demonstrates the strength of the Government’s approach to managing our strategic suppliers.

Once again, although the corporate structure of Interserve changed on Friday, I reassure all hon. Members that public service delivery remains wholly unchanged. No jobs have been lost, no pensions have been affected and no services have been disrupted.

[Christian Matheson]

Mr Deputy Speaker, would you pass on my thanks to Mr Speaker for granting this urgent question?

The slow-motion car crash that is the Interserve crisis seems finally to have come to a dreadful conclusion. Let us first remember the company’s 45,000 employees and hundreds of small subcontractors living with uncertainty today. In June 2018 the Cabinet Office gave Interserve a red rating, which indicates:

“Significant material concerns for Cabinet Office Commercial Relationships Board to consider High Risk designation.”

That followed profit warnings issued over the previous year. Despite this, Interserve continued to receive public sector contracts worth hundreds of millions of pounds, including from central Government—a situation remarkably similar to the problems with Carillion just over a year ago. According to the GMB union, the largest of those contracts is worth £66.7 million and was awarded by the Foreign and Commonwealth Office in August.

What checks did the Government make to ensure the contracts they were signing were being given to a company capable of delivering them? Can the Minister also confirm reports that his Department drew up secret plans to nationalise some of these contracts—in other words, to take them back in-house—should Interserve fail? Incidentally, we would support such plans in principle. If such plans were drawn up, why did contracts continue to be awarded to a company that Ministers knew was struggling and was possibly unable to fulfil them?

Will Ministers now activate those plans? If not, what steps will the Government take to ensure continuity of services, especially if parts of Interserve’s business are sold off? Among many other things, Interserve builds motorway junctions, provides maintenance on military bases and runs probation services—badly in the last case, even by the Government’s own admission.

Does the Minister agree this company has simply been hoovering up contracts willy-nilly, regardless of expertise and clearly without regard to the financial implications of such a strategy? Does he agree that Ministers have allowed this to happen based on a false economy of impossible contract prices that, as in the case of Carillion, brought down the whole company and much more around it? Does the Minister accept that the Government’s policy of focusing on just a few major contractors owned by big financial institutions has not only squeezed smaller UK businesses from the scene, but driven the risk to an unacceptable level, at great cost to the taxpayer? The Conservatives’ claim that outsourcing provides value for money has again been shown up for the ideological baloney that it really is. Finally, will the Minister confirm that the Government are looking at all major suppliers to ensure that their finances and ability to deliver contracts are watertight? After Carillion, and now Interserve, the public are entitled to ask who is next.

[Oliver Dowden]

I thank the hon. Gentleman for his questions. As he knows, I have great respect for him, but he rather overstates the case in respect of Interserve. Let me go through some of the points he raised. First, he asked whether checks were performed on the company before contracts were awarded. Yes, of course those checks were performed.

Rather than trading rhetoric around, let us look at the facts. Interserve issued a profit warning in September 2017, after which no major central Government contracts were awarded to Interserve until it completed its refinancing in April 2018. Since that refinancing, two such contracts have been awarded: one in August 2018 for facilities management for the Foreign and Commonwealth Office in Europe, where Interserve was the incumbent supplier, so it was essentially a continuation of that service; and secondly, a contract with Highways England was awarded in September 2018 for a £12 million bridge over the A63. Of course, contracts are being awarded across the wider public sector but, in respect of the contracts awarded by central Government and for which Ministers are responsible, those are the major contracts that were awarded in the relevant period.

The hon. Gentleman asked whether we will nationalise the company. The point here—indeed, the point about all the contingency—is that there is no need to invoke the contingency. Contingency is used if a company collapses —if it goes into liquidation—whereas in this case the companies that deliver services for the Government are entirely unaffected. All that has changed is the ownership by the parent company. Indeed, what has changed is that the company has got stronger—it has £100 million more on its balance sheets and fewer debts because of the restructuring—so there is absolutely no need to invoke the contingency preparation.

The hon. Gentleman talked about a few major companies winning Government contracts; let me tell him the figures: more than 5,000 companies bid for and win Government contracts. We have set a demanding target of a third of all business going to small and medium-sized enterprises.

If the hon. Gentleman is worried about contracts going to Interserve, perhaps he should speak to a few of his colleagues. For example, a £10 million contract was awarded to Interserve in June 2018—by Labour-run Southwark Council. Perhaps the hon. Gentleman could have a word with Labour-run Wales, which awarded a contract to Interserve just in December.

I really have to say to the hon. Gentleman that at this time when employers, suppliers and public service workers are seeking calm heads and reassurance, we are absolutely clear that they are completely reassured. I would have thought the hon. Gentleman would have done better.