John McTernan in The Guardian
What has outsourcing ever done for me?
In a parody of the Monty Python skit from Life of Brian, that is what critics and commentators are asking about the collapse of Carillion – formerly one of the UK’s biggest companies.
The answer – the true answer – is that we should always be grateful that private companies have delivered better public service for less money. And therefore have done three important things for us all.
First and foremost, it has delivered vital public services – and delivered them well. Notice that in the fallout over the collapse of Carillion few questioned the quality of what it has been doing in the public realm. From the NHS to HS2 the company’s record of delivery is positive.
Second, the company has taken risk out of the public sector and absorbed it themselves. It is one of the oldest criticism of public private partnerships that the transfer of risks is never achieved properly – profits, we are told sanctimoniously, are privatised, while risk remains nationalised. In the case of Carillion we can see that is utterly and demonstrably false. How? In the simplest possible way – the company has gone bust. There can be no starker demonstration that risk has been fully transferred than to see it crystallise – which has just happened.
And last, but not least, we have had a bargain – we have paid substantially less for services than they cost to deliver. How can we be sure about that? Again, it is the collapse that is the proof. If the directors had driven exploitative bargains with the public sector then they would be driving round in Maseratis rather than polishing their CVs and wondering how to explain their catastrophic failure to future prospective employers. Saving money in the provision of public services is a good thing. On the one hand, there are always too many demands to answer. On the other, at a time when the public books still have a massive overhang of debt following the Great Recession, every little bit of efficiency helps.
The problem is that we are all a little squeamish. Companies going out of business is part and parcel of how capitalism works – it is essential that there is both creativity and destruction. For individual workers whose pay and pensions depend on the continued success of the company that is disruptive.
But where public services are being delivered, government is continuing to underwrite employment and contracts will be taken over by another provider – public or private. This is, remember, the tightest labour market since the mid-70s. There is no reserve army of labour to take over these jobs at a lower price. After some turbulence, things will settle down again. Shareholders will have lost a lot of money. And senior managers will have lost jobs. Forgive me for not weeping over either of those facts.
The alternative is worse. Far worse. It is that repeated failure is bailed out – and, in effect, rewarded rather than punished. What does that look like? The life of the average government department. Millions of people are being immiserated by the failures of universal credit (UC). And this is not because of flaws in the new system but because of features of the new benefit. UC is failing and the only people paying the price are hard-working families who can least afford it.
The same is true of the Home Office. If the same combination of malignity, incompetence and out-and-out racism was being demonstrated by any private company it would not only be in court repeatedly, it would be bust. As it should be. The lack of contestability and accountability in direct government provision of services is a huge problem. Having a small amount of it brought into the system by contracting out is a powerful public good.
Wednesday 17 January 2018
Carillion's Directors Ticked all the Good Governance Boxes
Kate Burgess in The Financial Times
Following the collapse this week of Carillion, with less than £30m in the bank and liabilities of more than £2bn, the board of the construction company has been accused of being either deluded or just plain inept.
On paper, the directors looked well qualified to steer the outsourcer. As chairman, Philip Green was a former chairman of United Utilities, the UK’s largest listed water company. Not only had he run a large contracting company, he was also a fully paid-up member of the great and good as a former adviser to then prime minister David Cameron on corporate responsibility.
The directors did not lack experience, sitting on boards from Royal Dutch Shell to Premier Farnell.
Alison Horner, head of the remuneration committee, was formerly operations director at Tesco and a non-executive director of Tesco Bank. The head of the audit committee was an accountant, as were three other directors.
And none were entrenched. The chief executive, Richard Howson, who joined Carillion’s board in 2009, was the longest-serving member.
The board ticked all the boxes in terms of good governance. Carillion’s non-executive line-up included two women. The average age of directors was about 54 years, or 57 excluding Mr Howson (48), and Zafir Khan (also 48), the finance director appointed in January last year.
Yet just a year ago, the board cheerfully signed off statements from Mr Howson that debt would be below £300m within months.
With hindsight, the board fell into a series of textbook traps that have, over the years, felled many a construction and contract business:
- Failing to halt acquisitions and the build up of liabilities
-Signing off aggressive accounting policies that allowed revenues to be booked early and costs to be delayed
-Not tapping shareholders for help and instead continuing to pay out dividends even as cash haemorrhaged out of Carillion
- Signing off on hefty pay packets and bonuses for top executives even when they scored zero on key performance targets introduced to instil capital discipline
-Allowing clawback conditions to be changed a year ago, striking out corporate failure as a reason to take back bonuses
The board had seemed to be everything UK investors might want for a youngish business in a youngish sector. Carillion may have been formed from the construction divisions of Tarmac, Wimpey, Alfred McAlpine and Mowlem, which have been around for decades, but the company itself was formed in 1999. It engaged well with investors, even those who had shorted Carillion stock. Notably, shareholders approved directors’ elections without a murmur.
It is worrying to think the construction company’s board was such a model of good governance. If the line up had been different, would another cast of characters have done any better?
And how many other supposedly well-run boards are presiding over impending corporate disasters elsewhere?
Following the collapse this week of Carillion, with less than £30m in the bank and liabilities of more than £2bn, the board of the construction company has been accused of being either deluded or just plain inept.
On paper, the directors looked well qualified to steer the outsourcer. As chairman, Philip Green was a former chairman of United Utilities, the UK’s largest listed water company. Not only had he run a large contracting company, he was also a fully paid-up member of the great and good as a former adviser to then prime minister David Cameron on corporate responsibility.
The directors did not lack experience, sitting on boards from Royal Dutch Shell to Premier Farnell.
Alison Horner, head of the remuneration committee, was formerly operations director at Tesco and a non-executive director of Tesco Bank. The head of the audit committee was an accountant, as were three other directors.
And none were entrenched. The chief executive, Richard Howson, who joined Carillion’s board in 2009, was the longest-serving member.
The board ticked all the boxes in terms of good governance. Carillion’s non-executive line-up included two women. The average age of directors was about 54 years, or 57 excluding Mr Howson (48), and Zafir Khan (also 48), the finance director appointed in January last year.
Yet just a year ago, the board cheerfully signed off statements from Mr Howson that debt would be below £300m within months.
With hindsight, the board fell into a series of textbook traps that have, over the years, felled many a construction and contract business:
- Failing to halt acquisitions and the build up of liabilities
-Signing off aggressive accounting policies that allowed revenues to be booked early and costs to be delayed
-Not tapping shareholders for help and instead continuing to pay out dividends even as cash haemorrhaged out of Carillion
- Signing off on hefty pay packets and bonuses for top executives even when they scored zero on key performance targets introduced to instil capital discipline
-Allowing clawback conditions to be changed a year ago, striking out corporate failure as a reason to take back bonuses
The board had seemed to be everything UK investors might want for a youngish business in a youngish sector. Carillion may have been formed from the construction divisions of Tarmac, Wimpey, Alfred McAlpine and Mowlem, which have been around for decades, but the company itself was formed in 1999. It engaged well with investors, even those who had shorted Carillion stock. Notably, shareholders approved directors’ elections without a murmur.
It is worrying to think the construction company’s board was such a model of good governance. If the line up had been different, would another cast of characters have done any better?
And how many other supposedly well-run boards are presiding over impending corporate disasters elsewhere?
Ronaldinho - He Always Brought a Smile to Your Face
Sid Lowe in The Guardian
Ronaldinho. See? You’re smiling already. Just thinking about the things he did and the way he did them, the way he was, gets you giggling. Look him up on YouTube and maybe you’ll fall for him all over again, a bit like all those defenders. Watch for long enough – it won’t take long – and you might even feel like standing to applaud, just like the Santiago Bernabéu did, an ovation for a Barcelona player, as if for all the rivalry they hadn’t so much been beaten by his genius as shared in it. Sergio Ramos was on the floor, they were on their feet. Cameras zoomed on a man in the north stand with a moustache and a cigarette hanging limp from his lip. Bloody hell, did you see what he just did?
Golden Goal: Ronaldinho for Barcelona v Chelsea (2005)
It’s a question that was asked a lot. What Ronaldinho did, no one else did. And it wasn’t just what he did; it was the way he made people feel. Nostalgia, memories, are about that: not so much events but emotions. Watching Ronaldinho was fun, it made people happy. Those may be two of the most simple, childish words of all but they are the right ones. Football stripped right down to its essence: happy, fun.
Funny, too.
There may never have been a player who made the game as enjoyable as Ronaldinho, in part because he played and it was a game. “I love the ball,” he said. One coach, he recalled, told him to change, insisting that he would never make it as a footballer, but he was wrong. It was because he played, because he enjoyed it, that he succeeded: the grin on his face was not just there after he won the league, the Champions League, the World Cup and the Balon d’Or, it was there while he won them. It became contagious. “He changed our history,” Barcelona midfielder Xavi Hernández said.
One Real Madrid director claimed that Madrid hadn’t signed him because he was “too ugly” and would “sink” them as a brand. “Thanks to Beckham, everyone wants to shag us,” he said. He, too, was wrong: everyone wanted to embrace Ronaldinho, enjoy him. The long, Soul Glo hair, the goofy grin, that surfer’s “wave”, thumb and little finger waggling – a gesture so his, so symbolic of Barcelona’s revival that is was fashioned from foam and sold in the club shop.
An entire publicity campaign was built around him, the embodiment of “jogo bonito”. He might not have been beautiful but his game was and no one was more attractive, a marketing dream Madrid missed. Almost a comedy cartoon character himself, he inspired the “BarcaToons” and on Spain’s version of Spitting image his puppet giggled and laughed and repeated one word over and over: fiesta!. “I am like that,” he admitted.
On the pitch, too, an extension of that expressiveness. “When you have the ball at your feet, you are free,” Ronaldinho wrote in an open letter to his younger self, repeating a mantra: creativity over calculation. “It is almost like you’re hearing music. That feeling will make you spread joy to others. You’re smiling because football is fun. Why would you be serious? Your goal is to spread joy.” He said that was the way his father, a shipbuilder and football fan who worked weekends at Gremio’s ground, had told him to play. His older brother Roberto was at Gremio too. And then, growing up, there was Bombom, his dog. He also played.
Ronaldinho’s brother was his idol but he ended up better than him. He was better than anyone at the time: you genuinely wondered if he might end up better than anyone else ever. It didn’t last long enough for that but it lasted because he did things you’d never witnessed before, skills most never imagined let alone replicated, and that emotion remained. “His feet are so fast he can touch the ball four times in half a second. If I tried to do what he can do, I’d end up injuring myself,” Philippe Cocu said.
He might not have been beautiful but his game was and no one was more attractive, a marketing dream Madrid missed.
For three years no one could match the wow, the wonder, the silliness, the jaw-dropping, laugh-out-loud daftness of it all. The back-heels, step-overs and rubber ankles, the power too, the change of pace, the passes without looking. The passes with his back, for goodness sake. The free-kicks over the wall, round the wall and under it. Nutmegs, lobs, bicycle kicks, everything.
An advert featuring Ronaldinho showed him ambling to the corner of the penalty area, pulling on new boots, flicking a ball into the air and keeping it there. Strolling around the area, he volleys the ball towards goal. It hits the bar and comes straight back to him, he controls it on his chest, swivels and volleys it goalwards. Again, it hits the bar and comes back. He controls it again and, still without letting it drop, hammers it goalwards a third time. For a third time, it thuds off the bar and sails straight back. Without letting the ball drop, he strolls back to where he started, sets it down and smiles. On the boots is stitched the word “happiness.”
Ronaldinho surrounded by four Celtic players during a Champions League match in March 2008. Photograph: Dave Thompson/PA
It is quite astonishing; it is also a fake, a montage. Or was it? There was a debate. You didn’t know – and that was the point, the measure of him. The fact that anyone could even begin to believe that such a nonchalant demonstration of mastery might be genuine was eloquent – and only with Ronaldinho would they. That didn’t happen, no, but the Bernabéu ovation did. So did the shot thundering in of the bar against Sevilla – at 1.20am. The goal against Milan. That toe-poke against Chelsea. “It’s like someone pressed pause and for three seconds all the players stopped and I’m the only one that moves,” he said.
The Brazilian legend Tostao claimed: “Ronaldinho has the dribbling skills of Rivelinho, the vision of Gerson, the spirit and happiness of Garrincha, the pace, skill and power of Jarzinho and Ronaldo, the technical ability of Zico and the creativity of Romario.” Above all he had one, very special ability: he made you smile.
Ronaldinho. See? You’re smiling already. Just thinking about the things he did and the way he did them, the way he was, gets you giggling. Look him up on YouTube and maybe you’ll fall for him all over again, a bit like all those defenders. Watch for long enough – it won’t take long – and you might even feel like standing to applaud, just like the Santiago Bernabéu did, an ovation for a Barcelona player, as if for all the rivalry they hadn’t so much been beaten by his genius as shared in it. Sergio Ramos was on the floor, they were on their feet. Cameras zoomed on a man in the north stand with a moustache and a cigarette hanging limp from his lip. Bloody hell, did you see what he just did?
Golden Goal: Ronaldinho for Barcelona v Chelsea (2005)
It’s a question that was asked a lot. What Ronaldinho did, no one else did. And it wasn’t just what he did; it was the way he made people feel. Nostalgia, memories, are about that: not so much events but emotions. Watching Ronaldinho was fun, it made people happy. Those may be two of the most simple, childish words of all but they are the right ones. Football stripped right down to its essence: happy, fun.
Funny, too.
There may never have been a player who made the game as enjoyable as Ronaldinho, in part because he played and it was a game. “I love the ball,” he said. One coach, he recalled, told him to change, insisting that he would never make it as a footballer, but he was wrong. It was because he played, because he enjoyed it, that he succeeded: the grin on his face was not just there after he won the league, the Champions League, the World Cup and the Balon d’Or, it was there while he won them. It became contagious. “He changed our history,” Barcelona midfielder Xavi Hernández said.
One Real Madrid director claimed that Madrid hadn’t signed him because he was “too ugly” and would “sink” them as a brand. “Thanks to Beckham, everyone wants to shag us,” he said. He, too, was wrong: everyone wanted to embrace Ronaldinho, enjoy him. The long, Soul Glo hair, the goofy grin, that surfer’s “wave”, thumb and little finger waggling – a gesture so his, so symbolic of Barcelona’s revival that is was fashioned from foam and sold in the club shop.
An entire publicity campaign was built around him, the embodiment of “jogo bonito”. He might not have been beautiful but his game was and no one was more attractive, a marketing dream Madrid missed. Almost a comedy cartoon character himself, he inspired the “BarcaToons” and on Spain’s version of Spitting image his puppet giggled and laughed and repeated one word over and over: fiesta!. “I am like that,” he admitted.
On the pitch, too, an extension of that expressiveness. “When you have the ball at your feet, you are free,” Ronaldinho wrote in an open letter to his younger self, repeating a mantra: creativity over calculation. “It is almost like you’re hearing music. That feeling will make you spread joy to others. You’re smiling because football is fun. Why would you be serious? Your goal is to spread joy.” He said that was the way his father, a shipbuilder and football fan who worked weekends at Gremio’s ground, had told him to play. His older brother Roberto was at Gremio too. And then, growing up, there was Bombom, his dog. He also played.
Ronaldinho’s brother was his idol but he ended up better than him. He was better than anyone at the time: you genuinely wondered if he might end up better than anyone else ever. It didn’t last long enough for that but it lasted because he did things you’d never witnessed before, skills most never imagined let alone replicated, and that emotion remained. “His feet are so fast he can touch the ball four times in half a second. If I tried to do what he can do, I’d end up injuring myself,” Philippe Cocu said.
He might not have been beautiful but his game was and no one was more attractive, a marketing dream Madrid missed.
For three years no one could match the wow, the wonder, the silliness, the jaw-dropping, laugh-out-loud daftness of it all. The back-heels, step-overs and rubber ankles, the power too, the change of pace, the passes without looking. The passes with his back, for goodness sake. The free-kicks over the wall, round the wall and under it. Nutmegs, lobs, bicycle kicks, everything.
An advert featuring Ronaldinho showed him ambling to the corner of the penalty area, pulling on new boots, flicking a ball into the air and keeping it there. Strolling around the area, he volleys the ball towards goal. It hits the bar and comes straight back to him, he controls it on his chest, swivels and volleys it goalwards. Again, it hits the bar and comes back. He controls it again and, still without letting it drop, hammers it goalwards a third time. For a third time, it thuds off the bar and sails straight back. Without letting the ball drop, he strolls back to where he started, sets it down and smiles. On the boots is stitched the word “happiness.”
Ronaldinho surrounded by four Celtic players during a Champions League match in March 2008. Photograph: Dave Thompson/PA
It is quite astonishing; it is also a fake, a montage. Or was it? There was a debate. You didn’t know – and that was the point, the measure of him. The fact that anyone could even begin to believe that such a nonchalant demonstration of mastery might be genuine was eloquent – and only with Ronaldinho would they. That didn’t happen, no, but the Bernabéu ovation did. So did the shot thundering in of the bar against Sevilla – at 1.20am. The goal against Milan. That toe-poke against Chelsea. “It’s like someone pressed pause and for three seconds all the players stopped and I’m the only one that moves,” he said.
The Brazilian legend Tostao claimed: “Ronaldinho has the dribbling skills of Rivelinho, the vision of Gerson, the spirit and happiness of Garrincha, the pace, skill and power of Jarzinho and Ronaldo, the technical ability of Zico and the creativity of Romario.” Above all he had one, very special ability: he made you smile.
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 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 “Inefficient” State Mops up the Disasters caused by “Efficient” Private Companies.
George Monbiot in The Guardian
Again the “inefficient” state mops up the disasters caused by “efficient” private companies. Just as the army had to step in when G4S failed to provide security for the London 2012 Olympics, and the Treasury had to rescue the banks, the collapse of Carillion means that the fire service must stand by to deliver school meals.
Two hospitals, both urgently needed, that Carillion was supposed to be constructing, the Midland Metropolitan and the Royal Liverpool, are left in half-built limbo, awaiting state intervention. Another 450 contracts between Carillion and the state must be untangled, resolved and perhaps rescued by the government.
Fire services ready to deliver school meals after Carillion collapse
When you examine the claims made for the efficiency of the private sector, you soon discover that they boil down to the transfer of risk. Value for money hangs on the idea that companies shoulder risks the state would otherwise carry. But in cases like this, even when the company takes the first hit, the risk ultimately returns to the government. In these situations, the very notion of risk transfer is questionable.
Nowhere is it more dubious than when applied to the private finance initiative projects in which Carillion specialised. The PFI was invented by John Major’s Conservative government, but greatly expanded by Tony Blair and Gordon Brown. Private companies finance and deliver public services that governments would otherwise have provided.
The government claimed that the private sector, being more efficient, would provide services more cheaply than the private sector. PFI projects, Blair and Brown promised, would go ahead only if they proved to be cheaper than the “public sector comparator”.
But at the same time, the government told public bodies that state money was not an option: if they wanted new facilities, they would have to use the private finance initiative. In the words of the then health secretary, Alan Milburn: “It’s PFI or bust”. So, if you wanted a new hospital or bridge or classroomor army barracks, you had to demonstrate that PFI offered the best value for money. Otherwise, there would be no project. Public bodies immediately discovered a way to make the numbers add up: risk transfer.
Nurses might be laid off, but the walls will still be painted
The costing of risk is notoriously subjective. Because it involves the passage of a fiendishly complex contract through an unknowable future, you can make a case for almost any value. A study published in the British Medical Journal revealed that, before the risk was costed, every hospital scheme it investigated would have been built much more cheaply with public funds. But once the notional financial risks had been added, building them through PFI came out cheaper in every case, although sometimes by less than 0.1%.
Not only was this exercise (as some prominent civil servants warned) bogus, but the entire concept is negated by the fact that if collapse occurs, the risk ripples through the private sector and into the public. Companies like Carillion might not be too big to fail, but the services they deliver are. You cannot, in a nominal democracy, suddenly close a public hospital, let a bridge collapse, or fail to deliver school meals.
Partly for this reason, and partly because of the inordinate political power of corporations and the people who run them, governments seek to insulate these companies from the very risks they claim to have transferred to them. This could explain why Theresa May’s administration continued to award contracts to Carillion after it had issued a series of profit warnings. Was this an attempt to keep the company in business?
If so, it was one of a long list of measures designed to privatise profit and socialise risk. PFI contracts specify that if there is a conflict between paying the private provider and delivering public services, the payments must come first. However deep the crisis in the NHS becomes, however many people must have their cancer operations postponed or be left to rot on trolleys, the legal priority is still to pay the contractor. Money is officially more valuable than life.
If a PFI consortium is contracted to deliver maintenance and ancillary services, these non-clinical functions are ringfenced, while the clinical services delivered by the public sector must be cut to make room for them. This forces public bodies to respond perversely to a funding crisis: nurses might be laid off, but the walls will still be painted. Many of the contracts cannot be broken for 25 or 30 years, regardless of whether or not they still meet real needs: again, this insulates the private sector from hazard, leaving it with the public. The risk lands not only on the state but also on the people. Carillion leaves behind a series of scandals, such as the food hygiene failure at Swindon’s Great Western Hospital, and the failings at the Surgicentre clinic it ran in Hertfordshire, revealed in a horrifying report in the Observer. Similar crises have attended many other deals with private providers: operating theatres flooded with sewage, power cuts which have left nurses to ventilate patients on life support by hand, school buildings falling apart, useless services continuing to be delivered while essential services are cut.
None of this was unforeseen. Some of us warned again and again during the New Labour years that this programme would prove to be an expensive fiasco. Even the Banker magazine predicted, in 2002, that “eventually an Enron-style disaster will be rerun on a sovereign balance sheet”. But the government didn’t want to know. Nor did the Conservative opposition, whose idea it was in the first place. Nor did the other newspapers, now apparently scratching their heads and wondering how this happened. There is no joy in being proved right, just immense frustration.
Risk to a company is not the same as risk to those who own and run it. The executives keep their payoffs. The shareholders take a hit on part of their portfolios, but limited liability ensures they can walk away from any debts. The company might disappear, but ultimately it’s just a name and some paperwork. But the risks imposed on the people – including the company’s workers – are real. We pay for these risks twice: first, when they are nominally transferred to corporations; then again, when they are returned to us. The word used to describe this process is efficiency.
Again the “inefficient” state mops up the disasters caused by “efficient” private companies. Just as the army had to step in when G4S failed to provide security for the London 2012 Olympics, and the Treasury had to rescue the banks, the collapse of Carillion means that the fire service must stand by to deliver school meals.
Two hospitals, both urgently needed, that Carillion was supposed to be constructing, the Midland Metropolitan and the Royal Liverpool, are left in half-built limbo, awaiting state intervention. Another 450 contracts between Carillion and the state must be untangled, resolved and perhaps rescued by the government.
Fire services ready to deliver school meals after Carillion collapse
When you examine the claims made for the efficiency of the private sector, you soon discover that they boil down to the transfer of risk. Value for money hangs on the idea that companies shoulder risks the state would otherwise carry. But in cases like this, even when the company takes the first hit, the risk ultimately returns to the government. In these situations, the very notion of risk transfer is questionable.
Nowhere is it more dubious than when applied to the private finance initiative projects in which Carillion specialised. The PFI was invented by John Major’s Conservative government, but greatly expanded by Tony Blair and Gordon Brown. Private companies finance and deliver public services that governments would otherwise have provided.
The government claimed that the private sector, being more efficient, would provide services more cheaply than the private sector. PFI projects, Blair and Brown promised, would go ahead only if they proved to be cheaper than the “public sector comparator”.
But at the same time, the government told public bodies that state money was not an option: if they wanted new facilities, they would have to use the private finance initiative. In the words of the then health secretary, Alan Milburn: “It’s PFI or bust”. So, if you wanted a new hospital or bridge or classroomor army barracks, you had to demonstrate that PFI offered the best value for money. Otherwise, there would be no project. Public bodies immediately discovered a way to make the numbers add up: risk transfer.
Nurses might be laid off, but the walls will still be painted
The costing of risk is notoriously subjective. Because it involves the passage of a fiendishly complex contract through an unknowable future, you can make a case for almost any value. A study published in the British Medical Journal revealed that, before the risk was costed, every hospital scheme it investigated would have been built much more cheaply with public funds. But once the notional financial risks had been added, building them through PFI came out cheaper in every case, although sometimes by less than 0.1%.
Not only was this exercise (as some prominent civil servants warned) bogus, but the entire concept is negated by the fact that if collapse occurs, the risk ripples through the private sector and into the public. Companies like Carillion might not be too big to fail, but the services they deliver are. You cannot, in a nominal democracy, suddenly close a public hospital, let a bridge collapse, or fail to deliver school meals.
Partly for this reason, and partly because of the inordinate political power of corporations and the people who run them, governments seek to insulate these companies from the very risks they claim to have transferred to them. This could explain why Theresa May’s administration continued to award contracts to Carillion after it had issued a series of profit warnings. Was this an attempt to keep the company in business?
If so, it was one of a long list of measures designed to privatise profit and socialise risk. PFI contracts specify that if there is a conflict between paying the private provider and delivering public services, the payments must come first. However deep the crisis in the NHS becomes, however many people must have their cancer operations postponed or be left to rot on trolleys, the legal priority is still to pay the contractor. Money is officially more valuable than life.
If a PFI consortium is contracted to deliver maintenance and ancillary services, these non-clinical functions are ringfenced, while the clinical services delivered by the public sector must be cut to make room for them. This forces public bodies to respond perversely to a funding crisis: nurses might be laid off, but the walls will still be painted. Many of the contracts cannot be broken for 25 or 30 years, regardless of whether or not they still meet real needs: again, this insulates the private sector from hazard, leaving it with the public. The risk lands not only on the state but also on the people. Carillion leaves behind a series of scandals, such as the food hygiene failure at Swindon’s Great Western Hospital, and the failings at the Surgicentre clinic it ran in Hertfordshire, revealed in a horrifying report in the Observer. Similar crises have attended many other deals with private providers: operating theatres flooded with sewage, power cuts which have left nurses to ventilate patients on life support by hand, school buildings falling apart, useless services continuing to be delivered while essential services are cut.
None of this was unforeseen. Some of us warned again and again during the New Labour years that this programme would prove to be an expensive fiasco. Even the Banker magazine predicted, in 2002, that “eventually an Enron-style disaster will be rerun on a sovereign balance sheet”. But the government didn’t want to know. Nor did the Conservative opposition, whose idea it was in the first place. Nor did the other newspapers, now apparently scratching their heads and wondering how this happened. There is no joy in being proved right, just immense frustration.
Risk to a company is not the same as risk to those who own and run it. The executives keep their payoffs. The shareholders take a hit on part of their portfolios, but limited liability ensures they can walk away from any debts. The company might disappear, but ultimately it’s just a name and some paperwork. But the risks imposed on the people – including the company’s workers – are real. We pay for these risks twice: first, when they are nominally transferred to corporations; then again, when they are returned to us. The word used to describe this process is efficiency.
Tuesday 16 January 2018
Both the left and the right can learn from Carillion's demise
Ben Chu in The Independent
Psychologists have identified a phenomenon they call “confirmation bias”. This is the tendency for people to interpret new information in a way that simply confirms their pre-existing beliefs. We’ve seen quite a lot of confirmation bias in the wake of Carillion’s belly flop into liquidation this week.
For some on the left this is all confirmation that privatisation of the provision of public services has been a disaster. It shows that corporate fat cats can walk away with profits while ordinary workers and small firms suffer, public services are put in jeopardy and taxpayers foot the bill.
For some on the right, on the other hand, it confirms that privatisation is working broadly as it should. A badly-run private company failed. Its contracts will now be re-distributed to other, more competent, private firms. As for profiteering at public expense, they see the precise opposite. If anything, civil servants have got too good at putting the squeeze on private contractors, forcing them into bidding wars which screw down their margins to almost nothing. Tough for the private companies, certainly, but it means better value for money for taxpayers.
Both sides should take a step back and remove the blinkers. It’s certainly welcome that Carillion’s shareholders and its lenders have not, despite intense corporate lobbying, been bailed out by the Government in the way banks were rescued in 2008. The shareholders will lose their shirts. And the banks must write-down their loans. That is how it ought to be. Leftist nationalisers ought to recognise that this represents progress.
But champions of privatisation should also face up to some unpalatable realities laid bare by this scandal. The profit margins of some contractors may be small but Carillion still managed to pay regular and substantial dividends to its shareholders, even when it was clear the company was financially overstretched.
And there have been high personal rewards for failed management. If these services had been managed “in-house”, no civil servant would have been paid the £1.5m a year that Richard Howson, the former chief executive of Carillion, commanded. The head of the NHS, Simon Stevens, by comparison, earns £190,000 a year. Are we really to believe that more modestly paid civil servants would have been vastly less competent than Howson and his team at Carillion?
As for the idea that civil servants have morphed into hard-nosed contracting experts, that rather stretches credulity given the miserable history of Private Finance Initiative deals. Moreover, this adversarial image isn’t a particularly useful way to conceptualise the relationship between private contractors and the state when it comes to the delivery of public services.
This relationship is inherently different from a normal commercial transaction between two parties. It has to be a much closer (and ongoing) relationship because society cannot cope with even a brief interruption of supply of the services. Ministers can’t allow a prison to be unguarded, a hospital to go uncleaned, a school to be without catering, a care home to be shut down.
Commissioning a contractor to deliver a public service extremely cheaply is a false economy if that contractor runs the risk of financial collapse and the state will have to fork out to keep the show on the road, as it is now with Carillion’s contracts.
This reality was also demonstrated last year when the Transport Secretary allowed Virgin and Stagecoach to exit their East Coast rail franchise early, costing the state £2bn in foregone payments, after the operators discovered they were running at a loss. It was not wise for the Transport Department to have accepted such a high bid from the consortium in 2015, however good it looked at the time.
One clear lesson from Carillion’s demise is that much more public transparency over contractors’ books is needed, something the National Audit Office urged back in 2013. The Carillion fiasco demonstrates that it’s impossible to rely on the expertise, or perhaps integrity, of auditing firms to flag looming problems.
In the end, the broader privatisation versus nationalisation debate might be an unhelpful framing of the issue. Even if many more services are managed in-house, as Labour wants, there will still be contracting out. Even Jeremy Corbyn is not demanding the nationalisation of construction firms.
When it comes to the delivery of vital public services, there is an unavoidable symbiosis between the state sector and the private sector. There is no purity to be found. The key question, which is too little addressed, is the appropriate balance of authority in that relationship and the institutional checks on that authority to ensure the broad public interest is always paramount.
Psychologists have identified a phenomenon they call “confirmation bias”. This is the tendency for people to interpret new information in a way that simply confirms their pre-existing beliefs. We’ve seen quite a lot of confirmation bias in the wake of Carillion’s belly flop into liquidation this week.
For some on the left this is all confirmation that privatisation of the provision of public services has been a disaster. It shows that corporate fat cats can walk away with profits while ordinary workers and small firms suffer, public services are put in jeopardy and taxpayers foot the bill.
For some on the right, on the other hand, it confirms that privatisation is working broadly as it should. A badly-run private company failed. Its contracts will now be re-distributed to other, more competent, private firms. As for profiteering at public expense, they see the precise opposite. If anything, civil servants have got too good at putting the squeeze on private contractors, forcing them into bidding wars which screw down their margins to almost nothing. Tough for the private companies, certainly, but it means better value for money for taxpayers.
Both sides should take a step back and remove the blinkers. It’s certainly welcome that Carillion’s shareholders and its lenders have not, despite intense corporate lobbying, been bailed out by the Government in the way banks were rescued in 2008. The shareholders will lose their shirts. And the banks must write-down their loans. That is how it ought to be. Leftist nationalisers ought to recognise that this represents progress.
But champions of privatisation should also face up to some unpalatable realities laid bare by this scandal. The profit margins of some contractors may be small but Carillion still managed to pay regular and substantial dividends to its shareholders, even when it was clear the company was financially overstretched.
And there have been high personal rewards for failed management. If these services had been managed “in-house”, no civil servant would have been paid the £1.5m a year that Richard Howson, the former chief executive of Carillion, commanded. The head of the NHS, Simon Stevens, by comparison, earns £190,000 a year. Are we really to believe that more modestly paid civil servants would have been vastly less competent than Howson and his team at Carillion?
As for the idea that civil servants have morphed into hard-nosed contracting experts, that rather stretches credulity given the miserable history of Private Finance Initiative deals. Moreover, this adversarial image isn’t a particularly useful way to conceptualise the relationship between private contractors and the state when it comes to the delivery of public services.
This relationship is inherently different from a normal commercial transaction between two parties. It has to be a much closer (and ongoing) relationship because society cannot cope with even a brief interruption of supply of the services. Ministers can’t allow a prison to be unguarded, a hospital to go uncleaned, a school to be without catering, a care home to be shut down.
Commissioning a contractor to deliver a public service extremely cheaply is a false economy if that contractor runs the risk of financial collapse and the state will have to fork out to keep the show on the road, as it is now with Carillion’s contracts.
This reality was also demonstrated last year when the Transport Secretary allowed Virgin and Stagecoach to exit their East Coast rail franchise early, costing the state £2bn in foregone payments, after the operators discovered they were running at a loss. It was not wise for the Transport Department to have accepted such a high bid from the consortium in 2015, however good it looked at the time.
One clear lesson from Carillion’s demise is that much more public transparency over contractors’ books is needed, something the National Audit Office urged back in 2013. The Carillion fiasco demonstrates that it’s impossible to rely on the expertise, or perhaps integrity, of auditing firms to flag looming problems.
In the end, the broader privatisation versus nationalisation debate might be an unhelpful framing of the issue. Even if many more services are managed in-house, as Labour wants, there will still be contracting out. Even Jeremy Corbyn is not demanding the nationalisation of construction firms.
When it comes to the delivery of vital public services, there is an unavoidable symbiosis between the state sector and the private sector. There is no purity to be found. The key question, which is too little addressed, is the appropriate balance of authority in that relationship and the institutional checks on that authority to ensure the broad public interest is always paramount.
Justice as a king’s command
Jawed Naqvi in The Dawn
REMEMBER Emperor Akbar in Mughal-i-Azam? Akbar ka insaf uska hukum hai. Akbar’s command is his justice. This was how the great Mughal ruler dismissed a poor woman’s petition to save her daughter from imminent and wilful execution in the movie. In the real world, Akbar may have never spoken Urdu just as he may have never been approached to spare the life of any Anarkali if she ever existed. The dialogue writer, Wajahat Mirza, died in Karachi in 1990 but not before unwittingly describing an essential feature of justice everywhere — that it is universally a subjective thing. It was the whim of ancient kings and it remains a whim packaged in ornate terminology today, be it as a feature of democracy or of the Third Reich.
Four judges decreed the hanging of Z.A. Bhutto under military dictatorship. Three opposed it. Bhutto lost the lottery. You may see the judges on both sides as scrupulous practitioners of law and you may see their choices as a personal predilection or both. Yakub Memon would have perhaps lived had a different judge had his way. One judge unseated Indira Gandhi from power, another endorsed her emergency rule. President Pratibha Patil opposed the death penalty on principle, to quote a different example, so she never rejected a mercy petition even if she did it by leaving the files unattended. Pranab Mukherjee, who succeeded her, clearly thought otherwise. He threw out all the mercy petitions he could, opening the path to the gallows for those on death row. Justice is thus both a lottery and the wilful command of a moody emperor with or without the judge’s wig.
As far as I am aware, there were no lawyers in Aurangzeb’s or Kautilya’s time though Shakespeare could not have conjured Portia without a nascent European tradition of black-robed advocates. The encounter between the petitioner and the magistrate in Chandragupta Maurya’s court would have been direct and swift, with no place for intermediaries, today’s LL.B degree holders.
In a different era, the lawyers can mutate into an ideologically driven mob, for example to shower Mumtaz Qadri with rose petals while cheering him for killing a secular, liberal soul that Salmaan Taseer was. And there were the Indian counterparts who viciously assaulted outspoken student leader Kanhaiya Kumar as he was being escorted to the courtroom.
Judges often change their ideological preferences to comply with the doctrine of the state they serve.
In India, there is a new tradition, which I also noticed in Srinagar, to prevent lawyers from defending a petitioner. Hansal Mehta made Shahid, a powerful film depicting the true story of a Muslim lawyer in Mumbai who was killed by irate pseudo nationalists because he defended the weak and probably innocent Muslim men in law courts against accusations of terrorism.
Judges can be killed too, usually falling to those they have ruled against. Three US federal judges are on record as being murdered by those their judgements did not please. During the troubled period, the IRA killed three judges, including Lord Justice Sir Maurice Gibson in 1987. That’s a good reason that judges everywhere are accorded adequate personal security.
Indian judge B.H. Loya was hearing a fake encounter case when he died suddenly. The Bombay High Court is looking into allegations that he was murdered while the official records say that the 48-year-old judge succumbed to a heart attack. Loya’s family first feared that he might have been killed after turning down a bribe offer. They later said they no longer believed that to be so. There’s public outcry to investigate the death nevertheless, not least because the head of India’s ruling party stands named in the incident. Soon after Loya’s death in December 2014, his successor dropped the fake encounter case against BJP President Amit Shah.
The most telling comment on the cynical state of justice in India came perhaps from a man described as Babu Bajrangi, a self-confessed Hindutva zealot, who was caught in a sting operation carried out by journalist Ashish Khetan, now a member of the Aaam Aadmi Party. Bajrangi said on camera that he was denied bail on murder charges and that his leader would arrange the right judge to set him free. Cases have to be sometimes transferred to different states over fears that justice would not be delivered in a particular state in a particular court, a fear suggesting that judges are a subjective lot.
In the old days justice was delivered on behalf of the ubiquitous moneylender who had the thumb impression of the illiterate peasant on the book of accounts as evidence of money advanced. Indebted peasants are still committing suicide in India in droves, as they fear that the law overtly or covertly favours the creditor. The Portias are there to protect the poor and ignorant from wily Indian Shylocks but they are few and far between.
Judges often change their ideological preferences to comply with the doctrine of the state they serve. The head of the justice department in Nazi Germany was a former Bolshevik. With the rise of right-wing nationalism in India, a gradual ideological shift is perceptible in all institutions. The Rashtriya Swayamsewak Sangh’s Dattopant Thengadi set up the Akhil Bharatiya Adhivakta Parishad (All India Advocates Council) in 1992, ironically the year the Babri Masjid was demolished in defiance of the Supreme Court’s ruling. The lawyers’ body has produced several judges from its ranks. Justice Deepak Misra, the chief justice of India, seems to be an admirer of the RSS-backed advocates’ body as he was the chief guest at their annual function in Bengaluru two years ago.
Four most senior judges of the Supreme Court took an unprecedented step last week to address a news conference where they expressed the fear that Indian democracy was in peril. Emperor Akbar would not be amused.
REMEMBER Emperor Akbar in Mughal-i-Azam? Akbar ka insaf uska hukum hai. Akbar’s command is his justice. This was how the great Mughal ruler dismissed a poor woman’s petition to save her daughter from imminent and wilful execution in the movie. In the real world, Akbar may have never spoken Urdu just as he may have never been approached to spare the life of any Anarkali if she ever existed. The dialogue writer, Wajahat Mirza, died in Karachi in 1990 but not before unwittingly describing an essential feature of justice everywhere — that it is universally a subjective thing. It was the whim of ancient kings and it remains a whim packaged in ornate terminology today, be it as a feature of democracy or of the Third Reich.
Four judges decreed the hanging of Z.A. Bhutto under military dictatorship. Three opposed it. Bhutto lost the lottery. You may see the judges on both sides as scrupulous practitioners of law and you may see their choices as a personal predilection or both. Yakub Memon would have perhaps lived had a different judge had his way. One judge unseated Indira Gandhi from power, another endorsed her emergency rule. President Pratibha Patil opposed the death penalty on principle, to quote a different example, so she never rejected a mercy petition even if she did it by leaving the files unattended. Pranab Mukherjee, who succeeded her, clearly thought otherwise. He threw out all the mercy petitions he could, opening the path to the gallows for those on death row. Justice is thus both a lottery and the wilful command of a moody emperor with or without the judge’s wig.
As far as I am aware, there were no lawyers in Aurangzeb’s or Kautilya’s time though Shakespeare could not have conjured Portia without a nascent European tradition of black-robed advocates. The encounter between the petitioner and the magistrate in Chandragupta Maurya’s court would have been direct and swift, with no place for intermediaries, today’s LL.B degree holders.
In a different era, the lawyers can mutate into an ideologically driven mob, for example to shower Mumtaz Qadri with rose petals while cheering him for killing a secular, liberal soul that Salmaan Taseer was. And there were the Indian counterparts who viciously assaulted outspoken student leader Kanhaiya Kumar as he was being escorted to the courtroom.
Judges often change their ideological preferences to comply with the doctrine of the state they serve.
In India, there is a new tradition, which I also noticed in Srinagar, to prevent lawyers from defending a petitioner. Hansal Mehta made Shahid, a powerful film depicting the true story of a Muslim lawyer in Mumbai who was killed by irate pseudo nationalists because he defended the weak and probably innocent Muslim men in law courts against accusations of terrorism.
Judges can be killed too, usually falling to those they have ruled against. Three US federal judges are on record as being murdered by those their judgements did not please. During the troubled period, the IRA killed three judges, including Lord Justice Sir Maurice Gibson in 1987. That’s a good reason that judges everywhere are accorded adequate personal security.
Indian judge B.H. Loya was hearing a fake encounter case when he died suddenly. The Bombay High Court is looking into allegations that he was murdered while the official records say that the 48-year-old judge succumbed to a heart attack. Loya’s family first feared that he might have been killed after turning down a bribe offer. They later said they no longer believed that to be so. There’s public outcry to investigate the death nevertheless, not least because the head of India’s ruling party stands named in the incident. Soon after Loya’s death in December 2014, his successor dropped the fake encounter case against BJP President Amit Shah.
The most telling comment on the cynical state of justice in India came perhaps from a man described as Babu Bajrangi, a self-confessed Hindutva zealot, who was caught in a sting operation carried out by journalist Ashish Khetan, now a member of the Aaam Aadmi Party. Bajrangi said on camera that he was denied bail on murder charges and that his leader would arrange the right judge to set him free. Cases have to be sometimes transferred to different states over fears that justice would not be delivered in a particular state in a particular court, a fear suggesting that judges are a subjective lot.
In the old days justice was delivered on behalf of the ubiquitous moneylender who had the thumb impression of the illiterate peasant on the book of accounts as evidence of money advanced. Indebted peasants are still committing suicide in India in droves, as they fear that the law overtly or covertly favours the creditor. The Portias are there to protect the poor and ignorant from wily Indian Shylocks but they are few and far between.
Judges often change their ideological preferences to comply with the doctrine of the state they serve. The head of the justice department in Nazi Germany was a former Bolshevik. With the rise of right-wing nationalism in India, a gradual ideological shift is perceptible in all institutions. The Rashtriya Swayamsewak Sangh’s Dattopant Thengadi set up the Akhil Bharatiya Adhivakta Parishad (All India Advocates Council) in 1992, ironically the year the Babri Masjid was demolished in defiance of the Supreme Court’s ruling. The lawyers’ body has produced several judges from its ranks. Justice Deepak Misra, the chief justice of India, seems to be an admirer of the RSS-backed advocates’ body as he was the chief guest at their annual function in Bengaluru two years ago.
Four most senior judges of the Supreme Court took an unprecedented step last week to address a news conference where they expressed the fear that Indian democracy was in peril. Emperor Akbar would not be amused.
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