Carillion collapse a ‘watershed’ for outsourcing

George Parker and Gemma Tetlow in The Financial Times

The collapse of Carillion, the company responsible for everything from building hospitals to providing school meals, is a “watershed” moment that proves that the private sector should not be running swaths of Britain’s public services, according to Labour leader Jeremy Corbyn. 

The revolution in outsourcing public services started by Margaret Thatcher, which by 2014-15 accounted for about £100bn or 15 per cent of public spending according to the National Audit Office, faces a thorough reappraisal, with Mr Corbyn standing ready to disrupt the industry altogether. 

“It is time to put an end to the rip-off privatisation policies . . . that fleeced the public of billions of pounds,” said Mr Corbyn, in a video that was watched almost 300,000 times in 24 hours on Facebook. 

“Across the public sector, the outsource-first dogma has wreaked havoc. Often it is the same companies that have gone from service to service, creaming off profits and failing to deliver the quality of service our people deserve,” he added. 

Outsourcing of public services to the private sector was virtually non-existent in the 1970s, but Mrs Thatcher changed that in 1980 when local authorities — which had previously directly employed blue-collar workers to build roads and houses, and collect refuse — were required to put the work out to tender. 

David Willetts, a former Treasury official, policy wonk and later Tory MP, was a key promoter of the private finance initiative, but admits that in some recent projects the scheme has gone awry. 

He argues that it was right to hand projects to the private sector if there was a genuine transfer of risk, but that the Carillion collapse had exposed cases where in the end, the risk reverted to the government, which had to maintain public services. 

Last year John McDonnell, shadow chancellor, vowed at the Labour conference to nationalise such contracts as part of a wider plan to roll back private sector involvement in public services. Carillion has strengthened his resolve. 

 

In a more detailed email briefing, the party’s position seemed more nuanced. It said Labour would “look to” take control of PFI contracts and that it would review all of them and — “if necessary” — take them back in-house. 

This has unsettled some Labour moderates. “Where is the element of choice if everything is done in house by a public sector body?” asked one Blairite former minister. “Could things be done differently? All that would be lost.” 

Since 1980 huge swaths of services — from providing school meals to refuelling RAF aircraft — have been outsourced to the private sector under Conservative and Labour governments. 

This outsourcing boom led to the creation of new companies, such as Capita, that specialise in serving public sector clients but it also attracted existing overseas municipal providers, such as Veolia. 

NAO figures suggest the bulk of central government spending on outsourcing goes to pay for IT, facilities management and professional services. Local authorities rely on the private sector to provide a range of services from social care to waste disposal, and the private sector provides healthcare to NHS-funded patients. 

Several high-profile outsourcing failures have raised questions about whether the taxpayer is getting best value for money from some contracts. Carillion’s collapse is the most recent, but not the only example. 

Members of the armed forces were drafted in to provide security for the 2012 London Olympic Games after G4S was unable to provide sufficient numbers of staff.

The failure of Metronet, which had been contracted to maintain and upgrade the London Underground, in 2007 cost the taxpayer at least £170m. Several privately run prisons have hit the headlines over the past 18 months as levels of violence have increased while spending and staff have been cut. 

But many other public services have been successfully outsourced with little or no public comment. 

“Most people in Britain are endlessly using contracted-out services without really noticing it,” said Tony Travers, a professor at the London School of Economics. “The question is what is the contract mechanism to ensure that what is done is done appropriately.” 

He said at least two lessons could be drawn from recent failures. The first is that overzealous efforts by government to drive down costs in contracts are not necessarily a good thing. 

Carillion is not the only private provider to have signed up to contracts committing to providing services at implausibly low cost. At the end of last year, the Competition and Markets Authority highlighted concern that private providers of social care that serve mainly the public sector were “unlikely to be sustainable” unless local authorities paid more for their services. 

The second lesson is that ministers and civil servants need to carry out proper due diligence on companies tendering for public contracts.

The public sector isn't perfect but at least it doesn't fleece us

A culture in which the customer comes last will fail and fail again

• 
• • Will Hutton
  • The Observer, Saturday 8 February 2014 20.05 GMT

However friendly people working a call centre are, they are caught in a process that puts the customer last. Photograph: Murdo Macleod for the Observer

Lloyds Bank casually announced last week that it was setting aside another £1.8bn to meet potential claims from customers after knowingly selling them expensive insurance policies they could not need nor use. The grand total of provisions it has made is now nearly £10bn for claims from up to 700,000 people – a stunning indictment of its business practices.

Yet there is little public angst. Last December, Lloyds was fined a record £28m by the Financial Conduct Authority for the period between 1 January 2010 and 31 March 2012 – during which the government held a 39% stake in the bank – for having lax controls and incentivising its staff to treat its customers as milch cows. Extravagant "champagne" bonuses were offered to staff who could loot their customers with policies cynically designed to offer nothing of value, nothing less than organised theft. In Ireland at least, the former executives of the bust Anglo Irish bank are on trial. In Britain, the former head of Lloyds retail banking division, Helen Weir, has gone on to become finance director of John Lewis, but at least she has said how sorry she is. That's all right then.

Otherwise, Lloyds Bank is hardly eating humble pie. While Barclays chief executive, Antony Jenkins, is trying to engineer a massive change in his bank's culture, his counterpart at Lloyds seems to be focused on one target only – ensuring sufficient profitability to allow the government to offload more of its stake and, along the way, to vastly enrich himself. There has been zero pressure from his largest shareholder – the government – to reproduce Jenkins's initiative and do more about the mis-selling scandal than to utter bromides about winning back trust. The solution is for the bank to become 100% owned by the private sector as soon as possible, seen as an unalloyed good thing.

This combination – feckless owners, in this case HM Treasury, which cares nothing about the bank's ethics but only about its share price, alongside managers who appear to see their customers as objects to be fleeced – is deadly. But the media are hardly abuzz with sustained complaint and protest. Rather, they have helped construct the doctrine that anything done in the private sector is generally fabulous, and that £10bn scandals such as Lloyds, while deplorable, are the exception. Meanwhile, anything done in the public sector is by definition abominable, wasteful and ripe for privatisation or contracting out. The sooner Lloyds is in the private sector away from the "dead" hand of state ownership the better. But the state has not been a dead hand: it has been preoccupied with its own financial interests, like every other private owner.

Lloyds is not alone: the other banks have earmarked another £10bn for mis-selling similar products. Their investment bank arms are engulfed with charges of colluding to rig interest rates and foreign exchange markets on a global scale, along with more record-breaking fines. Meanwhile, the average customer's experience remains dismal. Staff in disempowered branches and industrialised call centres do their best to be friendly, but work within processes in which a good customer experience is plainly a low priority. Trying to exercise my right to flex a credit facility recently was a descent into a privatised Orwellian madness, while anyone who has had to look after an elderly relative's financial affairs enters a bureaucratic, time-consuming labyrinth.

This is not a culture confined to banking. Bombardier recently walked away from a £350m contract to provide signalling for London Underground: it had underestimated the technical complexity and would not commit the resource to meet its side of the bargain. But last week it picked up the £1bn contract to build 65 trains for Crossrail, with its disgraceful behaviour over the signalling contract forgotten, threatening to close its Derby plant if it did not get the business.

Then there are Serco and G4S, with their litany of failures as holders of government contracts. The root of their difficulties is, whatever their original virtues, both have built a culture in which exploiting, rather than serving, the customer comes first – whether it's Serco charging the state for electronically tagging prisoners who did not exist or G4S woefully underproviding security guards for the Olympics. The same dynamic – transient, greedy owners and pay systems that over-reward short-term financial success and cutting corners – produces the same result.

Now large parts of the probation service are to be run in the same way by the same kind of company, with the justice secretary, Chris Grayling, absurdly promising more " reform" and "efficiency". He is outdone by his colleague Dan Poulter at health, selling off 80% of Plasma Resources UK, the NHS company that secures blood plasma for British patients, to Bain Capital, the private equity company built by presidential candidate Mitt Romney. Bain's sole interest is financial, constrained only by its fear of a reputational disaster if patients start dying as it cuts costs and over-rewards managers who try to fleece the NHS, as they necessarily will. Who could consign the provision of blood plasma to such custodians? Only a fool, knave or Tory politician.

The NHS takes a daily pummelling, but enter its portals and a very different culture rules. Despite all the efforts of successive New Labour and Conservative ministers intent on reproducing the private sector "disciplines" that so animate Lloyds, Bombardier, Serco, G4S et al, it still manages to combine humanity and efficiency. Its systems are not extravagant, but there is a sense, as I recently discovered with a close family member in a long spell in hospital, that the patient remains at the centre of everyone's preoccupations.

The public sector is imperfect: it is run and operated by fallible human beings. There are spectacular failings, ranging from the BBC's wasted £100m on its digital media initiative to the unfolding IT disaster over universal credit. But what it does not deserve is universal castigation because a priori it must be useless. It is accountable. It does not loot its users. It is pretty efficient. It is humane.

Nor does the private sector warrant such fawning praise or the self-pity of many of its leaders who claim that profit is still a dirty word. It can do magic – the smartphone, anti-cancer drugs, multiple apps, robots – but it cuts corners too. The headlines, as I write, are of a food scandal in which a third of sampled foodstuffs are wrongly labelled. Regulation, derided as a burden on business, is, rather, what society deploys to keep business honest, whether it emanates from London or Brussels. It is time for a reset and a rebalance. End the jihad against all things public and invite business genuinely to earn its profits.

It's business that really rules us now

 

Lobbying is the least of it: corporate interests have captured the entire democratic process. No wonder so many have given up on politics

 

• 
• • George Monbiot
  • The Guardian, Monday 11 November 2013 20.31 GMT

‘Tony Blair and Gordon Brown purged the party of any residue of opposition to corporations and the people who run them. That's what New Labour was all about.' Photograph: Sean Dempsey/PA

It's the reason for the collapse of democratic choice. It's the source of our growing disillusionment with politics. It's the great unmentionable. Corporate power. The media will scarcely whisper its name. It is howlingly absent from parliamentary debates. Until we name it and confront it, politics is a waste of time.

The political role of business corporations is generally interpreted as that of lobbyists, seeking to influence government policy. In reality they belong on the inside. They are part of the nexus of power that creates policy. They face no significant resistance, from either government or opposition, as their interests have now been woven into the fabric of all three main political parties in Britain.

Most of the scandals that leave people in despair about politics arise from this source. On Monday, for instance, the Guardian revealed that the government's subsidy system for gas-burning power stations is being designed by an executive from the Dublin-based company ESB International, who has been seconded into the Department of Energy. What does ESB do? Oh, it builds gas-burning power stations.

On the same day we learned that a government minister, Nick Boles, has privately assured the gambling company Ladbrokes that it needn't worry about attempts by local authorities to stop the spread of betting shops. His new law will prevent councils from taking action.

Last week we discovered that G4S's contract to run immigration removal centres will be expanded, even though all further business with the state was supposed to be frozen while allegations of fraud were investigated.

Every week we learn that systemic failures on the part of government contractors are no barrier to obtaining further work, that the promise of efficiency, improvements and value for money delivered by outsourcing and privatisation have failed to materialise.

The monitoring which was meant to keep these companies honest is haphazard, the penalties almost nonexistent, the rewards can be stupendous, dizzying, corrupting. Yet none of this deters the government. Since 2008, the outsourcing of public services has doubled, to £20bn. It is due to rise to £100bn by 2015.

This policy becomes explicable only when you recognise where power really lies. The role of the self-hating state is to deliver itself to big business. In doing so it creates a tollbooth economy: a system of corporate turnpikes, operated by companies with effective monopolies.

It's hardly surprising that the lobbying bill – now stalled by the House of Lords – offered almost no checks on the power of corporate lobbyists, while hog-tying the charities who criticise them. But it's not just that ministers are not discouraged from hobnobbing with corporate executives: they are now obliged to do so.

Thanks to an initiative by Lord Green, large companies have ministerial "buddies", who have to meet them when the companies request it. There were 698 of these meetings during the first 18 months of the scheme, called by corporations these ministers are supposed be regulating. Lord Green, by the way, is currently a government trade minister. Before that he was chairman of HSBC, presiding over the bank while it laundered vast amounts of money stashed by Mexican drugs barons. Ministers, lobbyists – can you tell them apart?

That the words corporate power seldom feature in the corporate press is not altogether surprising. It's more disturbing to see those parts of the media that are not owned by Rupert Murdoch or Lord Rothermere acting as if they are.

For example, for five days every week the BBC's Today programme starts with a business report in which only insiders are interviewed. They are treated with a deference otherwise reserved for God on Thought for the Day. There's even a slot called Friday Boss, in which the programme's usual rules of engagement are set aside and its reporters grovel before the corporate idol. Imagine the outcry if Today had a segment called Friday Trade Unionist or Friday Corporate Critic.

This, in my view, is a much graver breach of BBC guidelines than giving unchallenged airtime to one political party but not others, as the bosses are the people who possess real power – those, in other words, whom the BBC has the greatest duty to accost. Research conducted by the Cardiff school of journalism shows business representatives now receive 11% of airtime on the BBC's 6 o'clock news (this has risen from 7% in 2007), while trade unionists receive 0.6% (which has fallen from 1.4%). Balance? Impartiality? The BBC puts a match to its principles every day.

And where, beyond the Green party, Plaid Cymru, a few ageing Labour backbenchers, is the political resistance? After the article I wrote last week, about the grave threat the transatlantic trade and investment partnership presents to parliamentary sovereignty and democratic choice, several correspondents asked me what response there has been from the Labour party. It's easy to answer: nothing.

Tony Blair and Gordon Brown purged the party of any residue of opposition to corporations and the people who run them. That's what New Labour was all about. Now opposition MPs stare mutely as their powers are given away to a system of offshore arbitration panels run by corporate lawyers.

Since Blair, parliament operates much as Congress in the United States does: the lefthand glove puppet argues with the right hand glove puppet, but neither side will turn around to face the corporate capital that controls almost all our politics. This is why the assertion that parliamentary democracy has been reduced to a self-important farce has resonated so widely over the past fortnight.

So I don't blame people for giving up on politics. I haven't given up yet, but I find it ever harder to explain why. When a state-corporate nexus of power has bypassed democracy and made a mockery of the voting process, when an unreformed political funding system ensures that parties can be bought and sold, when politicians of the three main parties stand and watch as public services are divvied up by a grubby cabal of privateers, what is left of this system that inspires us to participate?

This hajj, Muslims need to ask questions about exploitation

G4S's work in Saudi Arabia has sparked controversy. But where is the outcry over human rights as a new Mecca rises to service pilgrims?

• 
• • Riazat Butt
  • theguardian.com, Friday 27 September 2013 15.15 BST

Cranes and skyscrapers tower over Hajjis in Mecca. Photograph: Alaa Badarneh/EPA

News that the Saudi government has engaged the services of security firm G4S for this year's hajj is angering campaigners, who accuse the company of profiting from the Israeli occupation of Palestinian land.

G4S has not revealed details about the nature or the scale of its involvement during hajj although a 2011 publication mentions a contract with Jeddah Metro to assist with security during that year's pilgrimage.

In light of the accusations about its activities in Israel, the company told a website that although it operates there, the structure and management of its work in Saudi Arabia is entirely different. A G4S spokesman also told Middle East Monitor: "Whilst we don't provide security directly for the pilgrims, we do provide security support for clients in Saudi that will require additional support during the hajj period."

Regardless of the nature or scale of the security firm's involvement in the pilgrimage, the combination of sacred sites and occupied territories is an inflammatory one and one NGO is already calling on the Saudi ambassador to the UK for the government to immediately end its contracts with G4S.

But if Muslims feel aggrieved about human rights abuses and hajj, then perhaps they ought to take a look at what is happening under the shadow of the heavy machinery surrounding Mecca, for the skyscrapers and shopping malls of Islam's holiest city are not being built by pixies.

This week, the Guardian highlighted the abuse and exploitation of migrant workers who are preparing Qatar for the World Cup in 2022. Similar scrutiny should also be applied to the projects under way in the holy cities of Mecca and Medina, although these have traditionally tended to excite more indignation over the demolition of buildings with historic and religious significance than the erosion of rights of the workers razing mountains. It is a good thing there is more awareness about Islam's heritage and the need to preserve it. A natural extension of this activism and discussion are questions about the people shaping Mecca: who are they, and what are their living and working conditions like?

Given the problems in accessing Saudi Arabia at the best of times, let alone during hajj, it is difficult to establish how many workers are involved with the Mecca projects, where they come from, how they are treated and how closely construction firms obey the country's labour laws. Saudi laws outline the responsibilities that employers have to protect their workers against occupational hazards, industrial accidents and workplace injuries as well as dealing with the employment of non-Saudis. Human Rights Watch has documented themistreatment of migrant workers and it is clear that existing employment legislation is no bar to abuse. Construction workers in Saudi Arabia face many of the same problems with working conditions, lack of mobility, lack of redress as other workers based in the Gulf. As in Qatar, Saudi Arabia operates a kafala system, which requires all unskilled labourers to have a sponsor. Migrant workers are therefore unable to enter the country, leave it or change jobs without their company's permission. In the spirit of openness the Saudi government could list the names of companies involved in the building projects and these companies could in turn make a pledge to uphold the rights of workers in a way that not only adheres to national legislation but also the spirit of hajj.

It may be that the very purpose of hajj makes it difficult for some to focus on the issues that the modern day pilgrimage raises. It reconnects Muslims with the religion's prophets; it represents purity, renewal, a reminder of the hereafter, unity, submission to Allah, piety, collective worship and humility. But hajj is also about equality, fraternity and justice.

While nobody is expecting banners to be unfurled in the courtyard of the Grand Mosque – although it would certainly liven up the annual television coverage – there is nothing to stop Muslims from at least asking deeper, difficult questions about the human cost of hajj.

Time to explode the myth that the private sector is always better

Steve Richards in The Independent

The deeply embedded assumption that a slick, efficient, agile, selfless private sector delivers high-quality services for the public is being challenged once more in darkly comic circumstances. Those inadvertent egalitarians from the security firm G4S have failed to recruit enough security officers so it seems anyone will be able to wander in to watch the 100 metres final. Or at least that would have been the case if the public sector had not come to the rescue in the form of the army.

What an emblematic story of changing times. From the late 1970s until 2008, the fashionable orthodoxy insisted that the public sector alone was the problem. Advocates of the orthodoxy took a knock or two when the banking crisis cast light on parts of the pampered, sheltered and partially corrupt financial sector. Now we get a glimpse of incompetence and greed in another part of the private sector. As light is shed wider and deeper, we keep our fingers crossed that the public sector can rescue the Olympics from chaos.

The pattern is familiar but has been obscured until the arrival of this accessibly vivid example, an Olympic Games staged in a city paranoid about security without many security officers. For decades, private companies were hired on lucrative contracts for projects that the state could never allow to fail. If the companies delivered what was required, they earned a fortune. If they failed, the taxpayer found the money to meet the losses and those responsible for the cock-up often moved on to new highly paid jobs.

The lesson should have been learnt when Labour's disastrous Public Private Partnership for the London Underground collapsed, as this was another highly accessible example of lawyers, accountants and private companies making a fortune and failing to deliver. The Underground could never close, so all involved knew that in the event of failure, the Government or the Mayor of London would be forced to intervene. Boris Johnson described the arrangement at the time as "a colossal waste of money".

He was right, but that has not stopped his colleagues in Government looking to contract out to the private sector at every available opportunity. Andrew Lansley had hoped to make the NHS a great new playground for companies seeking an easy profit. He still might do so. Expect Michael Gove's so-called free schools to become profit-making enterprises if the Conservatives win the next election, and perhaps the academies, too. Maybe there will be a G4S-sponsored school.

G4S already runs prisons and some of the police operations that are being increasingly contracted out to private companies. The welfare-to-work contract secured by another company, much hailed by gullible ministers when the deal was announced as an example of efficiency and effectiveness, is already under critical scrutiny.

A fortnight ago, I argued that we are living through a slow British revolution partly as a result of the financial crisis and the exposure of reckless, unaccountable leadership from the City. The era of light regulation that allowed some bankers without much obvious talent to make a fortune is over. Now, slowly, the assumption held from Thatcher to Blair to Cameron that the delivery of public services should lie with the private sector is being overturned, too.

As is always the case in British revolutions, the change is being driven by startling events and not by political leadership. The Coalition still burns with an ideological zeal formed in the 1980s, the Conservative wing at one with Orange Book Liberal Democrats in their indiscriminate hunger for a smaller state and their undying faith in the private sector.

At the top of both parties, there are crusading advocates of an outdated vision that places too much faith in the likes of G4S and not enough in the potential dependability of a more efficient and accountable public sector.

This is not to argue that the public sector is perfect. Parts of it are complacently inefficient and paralysed by a sense of undeserved entitlement. The Coalition deserves some credit for seeking to increase transparency and accountability in an often over-managed and wasteful sector. In the case of the Olympics debacle and other equivalent deals, part of the culpability lies with government departments that negotiate on behalf of the taxpayer.

Last week, The Independent revealed that there had been no penalty clause in the G4S contract. On Tuesday, its unimpressive chief executive told the Home Affairs Committee that the company still expected to collect £57m for its contribution to the Olympic Games, an expectation that brings to mind once more that damning, ubiquitous phrase from the old Britain: "rewards for failure".

Who draws up these contracts? Which ministers sign them off? Why is their instinct always to outsource when there is now a mountain of evidence that failure follows?

Instead of focusing on the arduously unglamorous task of making the public sector more efficient and adaptable, ministers, like their New Labour predecessors, prefer still the deceptive swagger of the incompetent entrepreneur. The gullibility is more extraordinary now we finally get to know more about these supposed geniuses. Senior bankers earning millions stutter hesitantly when questioned by unthreatening MPs on select committees, incapable of articulating a case. Nick Buckles from G4S was so thrown by the Home Affairs Committee that he lapsed into a debate about whether the few security guards he had managed to hire spoke "fluent English", claiming not to know what such a term might mean. One of the great revelations since Britain's slow revolution began in 2008 is how many unimpressive mediocrities had risen in the unquestioning, unaccountable darkness that, until recently, acted as a protective layer for parts of the private sector.

But in the end look who is ultimately held to account. The Home Secretary, Theresa May, was called to the Commons twice this week to answer questions about what went wrong. She will be back in September. A government can outsource but it will still be held responsible, quite rightly, for the delivery of public services.

So political survival should motivate ministers in future to draw up much tighter deals with companies and to focus more on improving the public sector rather than expensively by-passing it. The voters have had enough of these abuses and yet, trapped by the past, some ministers show an ideological inclination to be abused for a little longer.