The failed contractor Carillion made considerably larger profit margins on its contracts with local government than for those with central government, a new investigation by the National Audit Office has revealed.
While its dealings with central government was “only just” profitable, with a 1% profit margin projected for 2017, its contracts with councils had a 13-15% operating margin, the NAO reported on Thursday.
The NAO estimated the total cost of the contractor’s collapse to the public purse to be £148m. The majority of that amount is expected to be met by money already put aside by the Cabinet Office to help finance its liquidation.
The NAO said Carillion held 19 contracts with local authorities and devolved authorities across the UK, with a number of schools maintenance contracts also tied to local authorities. LGC reported on a large number of these contracts at the time of Carillion’s collapse.
Due to the complex and diverse nature of Carillion’s contracts with local government - the scope of which the Cabinet Office was still investigating on the day of Carillion’s liquidation - the NAO reported it was unable to provide a total sum for local government contracts. It was possible to report, however, that Carillion’s total revenue from the UK public sector represented 45% of its UK total revenue.
Amyas Morse, the head of the NAO, said: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts. 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.”
The report also called into question the Cabinet Office’s lack of concern for local government, reporting that it had only sought to prepare schools and councils after it was “broadly satisfied with central government’s readiness”.
The Local Government Association has been contacted for comment.