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15 January 2018
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Carillion conundrum

The firm’s demise is being used to heap more criticism on the private finance model. It’s time to present the public with the facts

“This is the high risk gamble you take with handing infrastructure over to speculative private companies.”

That was the rallying cry from the RMT union as support services giant Carillion slipped towards insolvency over the weekend.

Such a view will not surprise anyone, coming as it does from a union that has long been opposed to the use of private finance in public infrastructure and services.

However, what is perhaps more noticeable is the harmony with which the RMT’s view coincides with that of Labour. In the hours after Carillion confirmed its compulsory liquidation, Jon Trickett, Shadow Minister for the Cabinet Office, announced: “Jobs and public services are now at risk because the Tories were blinded by their commitment to a failing ideological project of introducing the profit motive into taxpayer funded services.”

When Jarvis fell into administration at the end of the last decade, such a view was anathema to the Labour hierarchy. Back then, it was still Gordon Brown – who had been at the Treasury when the vast majority of PFI deals had been let – who was in charge of cleaning up the mess, and the Conservatives who were accusing Labour of letting the company get away with fat profits at the expense of taxpayers.

For the industry, many will simply shrug at the way politics is being brought into this situation, suggesting it is typical of politicians to make as much capital as they can out of embarrassing positions for government ministers who have let these contracts.

But with Jeremy Corbyn insisting in recent weeks that Labour now occupies the “centre ground”, the mood music around Carillion’s collapse is important for the future of British infrastructure.

If Labour and the unions do manage to ‘own’ this particular story, with their version of events coming to be seen by the wider public as the true picture, it will do yet further long-term damage to the PPP industry in the UK.

However, the story that needs to be told is what happens next. Stories abound over what the future will hold for Carillion’s existing contracts, with plenty of scaremongering around job security and the continued provision of services.

As experts point out, PFI and PPP contracts will invariably include ‘step-in’ or ‘self-help’ provisions that can now be invoked to safeguard the provision of services. “This means that the contractual arrangements organisations – such as NHS trusts – have with their private partners to meet costs and make alternative arrangements can ensure that (in the short term at least) services will keep going, and public services should not be hit immediately,” says Sharon Renouf, partner at law firm Bevan Brittan.

“There is an expectation on all sides that service responsibility will be maintained, whether that is providing meals, cleaning contracts, or that people can continue to turn up for work knowing that they will get paid.”

“The great benefit of PFI contracts is that the onus is on the private sector to come up with (and pay for) a solution,” adds Renouf’s colleague Louise Robling.

“In most cases, I would expect there to be a discussion between the authority and project company as to that solution. If there were a pure outsourcing contract between the authority and Carillion, then it would be the authority's issue to manage and pay for. Under PFI, the loss should remain with the project company.”

Furthermore, some infrastructure investors have already revealed that plans are in place for the continuation of services. INPP, for example, said that it had developed contingency plans that look at transferring facilities management services to other providers, with discussions having taken place in recent months.

“In the meantime, all the affected facilities are currently open and operating normally,” added INPP.

This demonstrates the way in which many investors and asset managers are working to ensure that services are continued with little or no disruption to clients.

Similarly, joint venture partners such as Balfour Beatty and Galliford Try have already admitted that they are likely to absorb some increased costs on projects as a result of Carillion’s collapse. So the clamour from the Left to see contracts brought back into government ownership may be misplaced.

And the good news is that, in his confirmation that the government would continue to provide the services and that “all employees should keep coming to work”, Cabinet Office minister David Lidington also defended the use of private finance to deliver government contracts.

“Since its inception in the 1990s private finance has helped to deliver around £60bn of much-needed capital investment in infrastructure in the UK across a range of projects and we will continue to maintain partnerships with responsible firms in future,” he said.

The hope must be that the government will be able to articulate that to the wider world. The danger is that the message of how the PPP mechanisms and safeguards swing into action in the event of a company’s collapse may get lost in the bellicose demands for contracts to be brought in-house.

 

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The firm’s demise is being used to heap more criticism on the private finance model. It’s time to present the public with the facts

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