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Carillion's gone bust. Now what?

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Commentary on Carillion’s collapse and what it might mean for local government.

‘Buy cheap, pay twice’, goes the old saying.

And if the past 48 hours are anything to go by, that old wisdom remains as pertinent as ever.

Carillion, the reportedly cost-cutting and undercutting contractor, has gone into receivership and councils are scrambling to keep their contracted services going.

LGC found at least 25 top-tier councils held major contracts with Carillion, of which eight were for school catering and cleaning services.

Staff in school kitchens, building sites, ICT classrooms and beyond were promised their much needed end-of-January salaries by councils – if they promised to just keep working.

Monday’s critical communications with front-line privatised staff followed a slow-motion car crash that started last summer.

Last July, most major banks said they would refuse the contractor funding following a massive profit warning, involving a £845m loss.

Why then did public sector officials continue to approach Carillion while private sector chiefs were walking away?

One possible answer may lie in a report which was due to go before Harrow LBC’s cabinet this week. The London borough was due to renew its Carillion-subsidiary contract for library services in two days time – despite public knowledge of the company’s financial woes.

Paul Walker, Harrow’s corporate director of community, recommended the renewal due to a “limited” market for library services management in the UK.

Councils across the country are being asked to do more, much more, for less, much less, and companies that can deliver cheaply are in short supply. Massive companies like Carillion have stepped in to deliver services where smaller firms just financially could not. As it turns out, it would seem Carillion could not do it either.

Since yesterday’s liquidation, however, some affected councils (mostly Labour-led) have announced plans to bring some of these contracts back in-house, reflecting a growing sense of change across the country.

Croydon LBC announced on Monday it was bringing its library services back in-house, while Tory-led Oxfordshire CC said it was considering council contracts for school catering staff after it placed firefighters on standby to potentially deliver school meals.

Next week the left-leaning thinktank, the Smith Institute, will publish a report calling for a review of outsourcing -– the third such review since the industry saw rapid growth under Thatcher’s government about 30 years ago.

The fall-out from Carillion’s collapse will have far-reaching consequences that will go on for years, of this many financial pundits are certain. Endless cross-overs and comparisons have been made today with Enron, the failed American mega-conglomerate which went bust, leading to greater scrutiny of auditors and a new dawn in financial regulation.

One can only hope that such scrutiny can continue on these shores, in order that such an impact will never be forced on frontline public services again.

By Robert Cusack, reporter 

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