Carillion and Public Sector Outsourcing

James Frith Excerpts

Wednesday 24th January 2018 Commons Chamber

[James Frith (Bury North) (Lab)]

Welcome back, Mr Deputy Speaker; it is good to see you.

The collapse of Carillion presents us with a watershed moment, if we choose to see it as such. This large outsourcing company with responsibility for public contracts was puffed up as a vehicle to transfer public sector jobs and to seemingly create the private sector jobs that this Government like to boast as having created. The creators of boom and bust are now presiding over boast and bust.

The Government’s boasting is real, but the moment their plan hits the rocks they walk on by. The boast becomes hubris and the Government’s confidence becomes cowardice. Workers are bounced off to the jobcentre, and pensioners are sent a phone number to chase up their livelihood. It is not good enough. The response to date has been obnoxious.

Carillion amassed £1.5 billion in debts, borrowing against public sector contracts handed out by this Government to build schools and hospitals. It routinely retained fees for its subcontractors and abused 30-day payment terms by responding in an average of 126 days. That contentious practice was not welded to contract law, and a Goliath-like expectation was put on smaller companies by the large international outsourcing companies preferred by the Cabinet Office since 2010. Such companies determine their next venture not according to any deep expertise, but according to the potential profits as they consider it in a boardroom while evaluating their stock and portfolio of Whitehall contracts.

Man cannot live on private sector alone. The limitations of both sectors are known, so it should be about collaboration and playing to strengths. There is a role for private companies such as Hargreaves in Ramsbottom, which is owed for the work it completed on the Royal Liverpool Hospital. It is also owed a considerable amount for contracted work yet to be done, yet the administrators have asked it to finish the job unpaid, its retention lost.

I say to the Government: do not close the shutters and ensure that administrators secure payment for completed work first from the wreckage. The Government also need to identify where Government contracts have been awarded but not paid in full to Carillion and send them to the businesses that got the job done but are out of pocket. They need to ensure that the renewal of contracts is kept in the SME sector and lead a taskforce dedicated to stabilising them. The Government need to get rid of this blind creed and stand up for the real wealth creators—the doers, not the doers-over. They should enforce public sector 30-day payment terms for existing companies engaged in this work and disqualify those that do not comply. Finally, they should introduce new legislative proposals to place retentions in secure, independently held deposit protection schemes, with tougher measures to limit borrowing against public contracts. I say to the Government to get a grip, get involved, step in and stop walking on by.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Andrew Griffiths)]

Mr Deputy Speaker, may I begin by welcoming you back to your rightful place? It is a great pleasure to see you there once again.

This has been an important and timely debate on the insolvency of Carillion. The decision by the directors to put Carillion into compulsory insolvency affects the lives and livelihoods of not just the 19,500 Carillion employees but many thousands of small businesses, contractors and employees up and down the country. This debate has been well attended, and I am sure that Members will understand if I cannot address each and every point raised. I promise to write to everybody who has asked a question, and will briefly touch on a few of them now.

The hon. Members for Wolverhampton North East (Emma Reynolds) and for Wolverhampton South East (Mr McFadden) raised several issues. I pay tribute to the diligence and commitment they have shown their constituents in trying to find out what happened with Carillion and to ensure that those workers are being treated as fairly as possible. They asked when people would get paid. The special manager, as they may know, has given a commitment that staff will be paid until at least the end of the month. However, as was highlighted in the debate, Wolverhampton is the nerve centre, and if the special managers are to continue running the business to maximise the benefits to creditors and ensure a smooth transition, that nerve centre will be vital to its future. I think they can be confident, therefore, that the future for them looks more certain.

My hon. Friend the Member for Cheltenham (Alex Chalk) raised a point about a constituent of his. I have looked at this and been advised that PWC is talking to the directors of the company today. If it continues to have problems with the financing of the business, I ask that my hon. Friend get back in touch with me, because I have some more information, which I will come to in a few moments.

The hon. Member for Liverpool, Riverside (Mrs Ellman) understandably raised her concerns about the impact on the Royal Liverpool Hospital. I can confirm that PWC has been instructed to continue paying the Carillion construction staff currently on site. That project, along with the other hospital projects, is a priority for the Government, and we are working incredibly hard to get them moving as quickly as possible. I will endeavour to keep her updated.

[James Frith]

Hargreaves is a company in Ramsbottom in my constituency that is contracted to put fire extinguisher equipment into the hospital. It has been asked by PWC to go in and complete the work, but PWC has also acknowledged that its retention fee is lost and that it should not expect to be paid for completing that work. Will the Minister give special attention to that issue?

[Andrew Griffiths]

I thank the hon. Gentleman for raising that point; he mentioned it earlier in the debate. I think he said it was asked to “finish the job for nothing”. I can confirm, having discussed it with the special manager, that anybody who is contracted to complete work after the date of compulsory liquidation will be paid by the special manager. I can put him straight on that one.

The hon. Member for Birmingham, Erdington (Jack Dromey), when he had finished his Castro-esque anti-capitalism rant, raised the issue of apprentices in his constituency who were sobbing because they had lost their opportunity of an apprenticeship. I think that that issue was also raised from the Opposition Front Bench. The Construction Industry Trading Board has taken over responsibility for the apprenticeships, and 1,100 of the 1,400 apprentices who are currently working for Carillion have had face-to-face interviews with the board and have been offered new apprenticeship roles. The board has confirmed that any of those 1,400 who wish to continue their training will be allowed to do so, which I think is very good news.

The hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle) said that he was “excited”. This is probably the only occasion on which I will agree with him in the Chamber—he certainly was excited.

My right hon. Friend the Minister for the Cabinet Office set out his approach to the oversight of contracts and awards and how that process relates to Carillion, and gave a detailed explanation of the measures that had been introduced. Let me add that when it was decided to place Carillion in insolvency, the Government had two priorities: to protect and maintain the delivery of vital services in schools, hospitals and prisons and on the railways, and to support not only the 19,500 people directly employed by Carillion, but the contractors and small businesses involved.

It was because we wanted to support the people whose lives had been affected that, on the very day of the collapse, my right hon. Friend the Secretary of State held a meeting with the eight largest trade bodies in the construction sector in order to understand better what we could practically do to help. They had four requests. First, they said that they wanted to be supported by their banks at that difficult time. In response, the Secretary of State and I convened a meeting of the banks, and asked them for tailored and sympatheic support for those affected. As a result of that meeting, nearly £1 billion has been made available by major lenders such as HSBC, Lloyds, RBS, and Santander in the form of loans, credit facilities and further financial support.

Secondly, many small businesses, in particular, were concerned about imminent tax liabilities. Her Majesty’s Revenue and Customs has now said that a “time to pay” facility will be available to businesses affected by Carillion’s insolvency, to give them the support and flexibility that they need.

Thirdly, the bodies asked for a meeting with the official receiver’s specialist manager to discuss the particular needs of the supply chain. At the Secretary of State’s request, PricewaterhouseCoopers has now met them, and me, twice, in order to tailor specific support where it is needed. Fourthly, they asked for a taskforce to be established to pool efforts to help the supply chain in particular. In response we have formed such a taskforce, chaired by my right hon. Friend the Secretary of State, which will meet for the third time—