Carillion

Debate between Stephen Kerr and Bernard Jenkin

Thursday 12th July 2018 Commons Chamber

[Sir Bernard Jenkin]

I totally agree with the concept that these contracts become too big to fail, and therefore, as I will explain, it becomes an illusion that the Government have transferred risk to these companies. These companies are a private sector extension of the public sector, and the public sector still carries the risk.

[Stephen Kerr (Stirling) (Con)]

My hon. Friend spoke earlier of contracts basically being awarded on price, rather than on any kind of value. Does he agree with the CBI’s response to the Carillion report that suppliers to the public sector need to “bid responsibly” for contracts and need to be “prepared to challenge” bad deals and to “walk away” from opportunities that will not yield long-term value? The reality is we have a group of companies in this country that seem to be addicted to bidding on price, and this becomes a self-fulfilling prophecy, à la Carillion.

[Sir Bernard Jenkin]

I agree, but unfortunately I think that the Government have fed that addiction. The pressures of austerity and the hunt for savings have encouraged the Government to try to get prices down and to be blind to the risks they are transferring to the private sector, resulting in the sickness of the sector. As I will explain, there is a misappreciation of the risks that private shareholders are prepared to bear, compared with the risks that we should be taking with public services and public money.

As I have said, the Government sometimes write into contracts that companies must accept the risk that the Government have got their own data wrong. An analysis disclosed by Serco found that this practice had taken place in 12 of the company’s recent procurements. That is in part driven by the decision to use contractual models such as payment by results that involve risk transfer on a huge scale. If the Government cannot assess the services they are trying to outsource, they simply cannot make an accurate calculation of a fair cost for the outsourcers, yet they tend to pretend to do so. In those circumstances, passing the risk on to contractors is unacceptable and, as we have seen, proves counterproductive, particularly if the Government are unable or unwilling to make a serious assessment of what is at risk when a company delivers public services.

PACAC found that the relentless drive to bring down costs has been among the most damaging factors. We received evidence from organisations and businesses in the sector that the Government have been “driven by price exclusively”, leading to a reduction in fees paid by up to 25% to 30%. Some people put it more bluntly. Rupert Soames, the chief executive officer of Serco, told us that

“in the four and half years that I have been running Serco I know one occasion”

when Serco had won a contract despite not being the lowest bidder. A survey conducted by the CBI revealed that 98% of businesses responding said that something other than “service quality” was the main reason why Government contracts are awarded. There are obvious problems with an undue reliance on price in the contracting process; industry leaders were concerned that “fudges” would

“allow technically poor but cheap bidders to continue... simply because the customer is desperate for the saving.”

Such bidders would then seek to renegotiate the price afterwards.

There are examples of all this going badly wrong. The Government, who are frequently the dominant purchaser in these markets, have great power to dictate prices to contractors. Professor Gary Sturgess, of the Australia and New Zealand School of Government—and why did we abolish our National School of Government and so have no equivalent institution?—told PACAC that companies were

“stupid to have gone ahead and entered into contracts... but this is a Government supply chain. ”

Representatives from the National Council for Voluntary Organisations said that, on average,

“large charities lose 11% on each contract they have with the government.”

There is something rather unpleasant about Government milking charities to subsidise public services, but that is, in effect, what is happening.

Instead of recognising that the focus on cost damages the ability of companies to meet the terms of their contracts and discourages innovation, the Government have taken a different approach. In some instances, they forgo performance penalties available to them, in essence declining to enforce the parts of the outsourcing contract that are designed to maintain the high standards of the service being provided, at the agreed price. In others, the Government have renegotiated the terms of some contracts. We received evidence from the Cabinet Office that just since 2016 the Government have renegotiated at least £120 million-worth of contracts in that way, including the Ministry of Justice’s flagship “Transforming Rehabilitation” scheme. The cost to the Government of the work necessary for the renegotiation itself is yet unknown.

PACAC found that the Government do not have a strong evidence base about when and whether to use the private sector, or whether such use will be more successful than using the public sector. This is what we call the decision to make or buy. The Treasury Green Book sets out a process that should be gone through when deciding whether to make or buy a service—whether to do it in house or put it out to contract—but we found no evidence that that was well understood or indeed followed. There is also a lack of a central database for outsourcing contracts, meaning that systematic analysis of outsourcing throughout the whole of Government is difficult at best, if not impossible. Nowhere is there an understanding of how much public service risk is being carried by each company, across all of its contracts and across all Departments. Without that kind of understanding, the Government are unable to prove the basic premise behind all forms of Government outsourcing: that the private sector is capable of providing a better service for better value. The basis for the claims made by the Minister who wrote the article in The Times earlier this week is data that is now some 20 years out of date. All this data should be published, as public confidence will not be strengthened without far more openness and transparency about how public contracts are let and managed. Nowhere is that more apparent than with private finance initiatives.

The ostensible purpose of PFIs was to take advantage of the expertise of the private sector in providing privately-financed infrastructure projects and buildings. However, despite having more than 20 years to research and form an evidence base, the Government were unable to justify their claims about the efficacy of PFI. In fact, in their testimony to PACAC, the Government claimed that PFI brought “discipline and rigour” to projects. But, while giving evidence, the chief executive of the civil service revealed that the real purpose is to make the public balance sheet look better. That motive can also be seen in the refinancing provisions for PFI, which allow the balance sheet to look better at the expense of the public finances.

It gets even worse than that. With private finance 2, it was decided that the proceeds of refinancing PFIs should be split between the contractors and the Government. After a school has been built and it is in the process of being managed, a lot of the risk has been carried, so the scheme can be refinanced at a lower rate of interest. It was decided that the benefits of that lower interest rate should be split 50:50 between the Government and the private sector. That was not the case with the original PFI scheme. It subsequently became apparent that, under the rather arcane public accounting rules, if such a change is made, the whole of the debt becomes public sector debt and is shown in the public sector borrowing requirement, so the Government said, “Oh, well, we’ll split it 70:30”. Therefore the Government now collect only 30% of the proceeds from refinancing a PFI contract. That is daft. It is the Government giving away public money just to satisfy silly public accounting rules. It should stop.

There are also issues concerning churn among civil service staff that make the management of public contracts difficult. Reports have highlighted the “insufficient continuity of staff” over the lifetime of a contract. On this front, the situation has been improving, but there is a great deal to do.

PACAC remains concerned that the Government are still taking a much too transactional approach to contracting and the management of contracts. It is vital not only that staff with commercial skills work alongside those within Government with other skills such as costing, IT and project management, but that those in the Government who manage the contract feel that those in the private sector are partners and collaborators. There should be trust and co-operation; it should not be an adversarial competition. When the Government make the decision to outsource a service, and when they accept bids from companies seeking to win the contracts for those services, it is crucial that the process of doing so is evidence-based and transparent.

It was to ensure that there was public trust in outsourcing, and in the Government’s capacity to do so, that Carillion was awarded contracts after it published a profit warning and after it had made other worrying sounds to the Government. That a company in the process of going bust should be awarded yet more contracts, giving it access to yet more taxpayer money, does raises the questions brought up by the hon. Member for Inverclyde (Ronnie Cowan) earlier. PACAC calls for the Government to re-examine how they assess contractors’ viability. Shareholders are prepared to take a far higher risk than the risk the Government should be prepared to take with public services and public money. The Government should publish their rationale for their decisions. Public service procurement cannot be done in the dark, cannot be done without evidence and cannot be done without the Government knowing what they are trying to outsource. It cannot be done on the cheap, and the public must be able to see that.

In conclusion, unless the right steps are taken and the right lessons are learned, a company very similar to Carillion, holding contracts of enormous public worth, could collapse again and all this will happen again. The public want companies that deliver public services better to reflect public-service values. Such companies are part of the public service, and if they do not demonstrate those values, they should not get the money.

European Union (Withdrawal) Bill

Debate between Stephen Kerr and Bernard Jenkin

Report stage: First Day: House of Commons
Tuesday 16th January 2018 Commons Chamber

[Stephen Kerr]

The hon. Lady is describing the attitude of the Welsh Government, which in many respects has been more hawk than dove on these matters. I have no doubt that that is for the Labour party’s political purposes in Wales, as such things are for the SNP in Scotland.

[Mr Jenkin]

It would be helpful if the Government gave an assurance today that in the event that there is no agreement with the Scottish or Welsh Governments, they will still amend clause 11—unilaterally, if necessary—to ensure that its effect is ameliorated as reasonably as possible. If the Scottish and Welsh Governments refuse to agree to that, it will be a problem for them and not for this Parliament.

[Stephen Kerr]

I completely agree with my hon. Friend. I believe that we must not be foolishly optimistic but realistic. When SNP Ministers talk as positively as they have, which is a different sound from the one that we hear from SNP Members here, then we have every reason to believe that wise heads—adult heads—will have sway and there will be an agreement.

I repeat—I do not want this not to be heard—that the Government made a clear commitment to the House on the amendments to clause 11, and I took those commitments at face value. As a Conservative Member, I never want to get to the point where I cannot take commitments given to me by right hon. and hon. Members at face value, because I hope, frankly, that they can continue to trust commitments that I might make to them. I really do want to understand why we have arrived at this point. I am afraid that there is a point of principle and accountability involved in answering these questions. What happened in the Departments in the past few weeks and months? Did they somehow lose focus? Were we not clear enough about what our expectations were?

I share with the House a concern that has resurfaced time and again since I was elected as Member for Stirling: since the devolution settlement UK Governments of all flavours have tended to devolve and forget, and that is a very dangerous practice. Again, I appeal to the Government to consider the appropriate machinery that creates the means by which our Governments work together, because that is what my constituents want. They are tired of the voices of conflict that they hear regularly in Scotland. They want us to be conciliatory. They want us to work by consensus and through collaboration.

When the devolution settlements first went through, when Labour was in power, there was a fashionable term that is still appropriate—“sofa government”. With a Labour Prime Minister in London and Labour First Ministers in Edinburgh and Cardiff, it was all very cosy, and so there was no need for any of the machinery that I am describing. In fact, one of the Scottish Labour leaders described their party in those days as the “branch office” of the party in London. By contrast, we as Unionists should believe in and work to the principles of partnership, and I believe that that is possible.

The reason behind amendments to clause 11 was to strengthen devolution and by doing so strengthen the Union. The nationalists will always create their narrative of grievance and scream “power grab” at every imagined opportunity. A strong amendment would have pulled the rug from under their squalid argument. It would have shown them up as the creators of grievance rather than giving grievance a voice, which we are hearing today.

Let me touch briefly on the rather weak amendments being offered up by the Opposition parties. The SNP amendment has no chance of passing and does nothing to address many of the concerns that Conservative Members have. The Labour amendment is well-intentioned but poorly drafted, and will only make room for legal wrangling and uncertainty. Not only that, but it shows no understanding that devolution in the UK is asymmetrical. The Scottish, Welsh and Northern Irish Parliaments are very different creatures, and there will undoubtedly be a need for frameworks that cover different parts of the United Kingdom and not just whole-United Kingdom frameworks.

For the good of Scotland, any powers that are returning to the UK from Brussels that are not reserved must, by definition, be devolved. I accept that UK frameworks are required. They can pragmatically solve problems, and they should do so through an equal partnership where all sides—Cardiff, Edinburgh, London and Stormont —can come together to solve problems and to share ideas. This is pragmatic partnership building. It is Unionism at its best, and even the enlightened nationalists seem to sign up for this. Everyone seems to agrees with it, so again I am left wondering why we would allow this Bill to leave this House and go to the other place without a suitable amendment.

I make no bones about it: it sticks in my craw to think that unelected Lords will make the vital amendments to this vital constitutional Bill. It is not really good enough, and as a Member of the House of Commons I hang my head to think that we have somehow dropped the ball. The Bill will leave this House unamended and in an unsatisfactory state, and we are now dependent on unelected Lords to do our job for us.

European Union (Withdrawal) Bill

Debate between Stephen Kerr and Bernard Jenkin

Committee: 4th sitting: House of Commons
Monday 4th December 2017 Commons Chamber

[Mr Jenkin]

I could not agree more, but I hope that the hon. Gentleman will acknowledge—I am not being accusatory—that this has been a failure of previous Governments as well as this one. When the Select Committee visited the Welsh Assembly and the Welsh Government during the 2010 Parliament, First Minister Carwyn Jones actually complained to us, perhaps with more rhetoric than was justified, that he had been trying to get a meeting with Prime Minister David Cameron for months and months—more than a year—but had not been allowed to have one. We need fewer excuses for people who want to be destructive and more confidence that meetings will take place and that they are valued by all parties.

[Stephen Kerr]

Is it my hon. Friend’s view that the mechanisms that determine such communication should be established by statute?

[Mr Jenkin]

I have an open mind on that, and I have fiddled around with my amendments, which have not appeared on the order paper today, to see whether we can find a way of doing that. I do not know whether this is the right Bill through which to do that—probably not—but such things are statutory in other decentralised systems. There clearly needs to be something much more formal, but we should perhaps experiment without statute first to see whether it is necessary. My Committee took evidence from one civil servant and a former Speaker’s Counsel who said, “It has worked very well for the past 300 years, so why do we need statute?” but that does not recognise that we now have competing political centres with, I repeat, competing narratives about what the constitution actually is. SNP colleagues talk about the natural sovereignty of the Scottish people, but the legal constitutional reality is that the Queen in Parliament in Westminster is still absolutely sovereign. Those things need to aired, discussed and understood.