Carillion: Govt ‘must improve’ knowledge of suppliers

NAO laments lack of understanding of financial health of major government suppliers; liquidation to cost £148m; Carillion had sought Midland Met bailout

The government needs to significantly improve its understanding of the financial health of its major suppliers, the National Audit Office (NAO) has said in its report into the collapse of Carillion.

“When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts,” said NAO head Amyas Morse. “Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened.

“Government has further to go in developing in this direction.”

Responding to the report, Frank Field, chair of the Commons work and pensions committee, said it showed Carillion had “hoodwinked the government as it did many others who were so naïve as to trust its published accounts”.

He and business committee chair Rachel Reeves also suggested that the report showed that Big Four accounting companies “make a killing in fees advising struggling companies how to turn them round and then they pocket millions tidying up when that advice fails”.

The NAO report also found that the Cabinet Office will pay an estimated £148m government loss on the insolvency – however, it warned that this is subject to “a range of uncertainties”.

It also pointed out that many public sector customers, including the special purpose vehicles delivering Carillion’s PFI contracts, are objecting to paying a 20% premium for post-liquidation services, while many also dispute outstanding invoices relating to the period before liquidation.

The NAO also revealed that Carillion had asked the Cabinet Office to provide up to £125m towards the completion of the Midland Metropolitan PF2 scheme, in exchange for an equity stake in the project. This was rejected by the government.