The collapse of the contractor Carillion will signal the end of private finance contracts, the chief executive of the Chartered Institute of Public Finance & Accountancy has predicted to LGC.
The contractor’s liquidation has also highlighted a need for greater transparency in contract procurement, Rob Whiteman said, days after chief secretary to the Treasury Liz Truss admitted the number of Carillion contracts held by public bodies was not known.
This comes after LGC revealed that at least 25 top-tier councils had been forced to pick up the tab in major contracts held with Carillion, whih went into administration on 15 January.
Since then, one council has brought forward the end date of its contract with the contractor while at least 10 more have brought several services in-house.
Mr Whiteman told LGC: “The Carillion affair is pretty much a death knell for PFI but not for outsourcing.
“Local authorities can borrow pretty cheaply now, so why should they borrow at contract at a greater expense? The agenda of taking expenditure off the balance sheet is no longer as important as it was.”
Mr Whiteman said the current market allows councils more freedoms on central loans.
“Private finance contracts afford bad value for money – it’s not cost effective to borrow through a contract when the state can now borrow through an investor at a much lower cost,” he said.
Of the 25 councils with Carillion contracts, 11 were related to major civil engineering works, eight were for school meals and cleaning services, four were for library management, and the remaining two contracts relate to ICT and road gritting.
Oxfordshire CC held the largest number of contracts, reportedly spending £136m on Carillion contracts over six financial years between 2011-12 and 2016-17. A spokesman for the council said on Monday it was bringing services for school catering and cleaning in-house early, and had made a final payment of £10.65m to the failed contractor for work it had completed.
Oxfordshire agreed to end Carillion’s contract in December and decided then to bring forward the date it ended from June to the beginning of February.
Lorraine Lindsay-Gale (Con), cabinet member for community services, said: “We brought the process forward and legally terminated our contact and will be taking over those services to ensure continuity.
“Carillion’s financial problems were not the original reason we wanted to end the contract. But as the scale of the company’s problems became apparent we are very glad we ended the contract when we did.”
Carillion’s collapse has led to calls for an online register for public contracts.
Mr Whiteman said that was a “good idea because it could compare and transfer contract terms from one public body to another”.
He added: “It would give the public bodies leverage over the contractor if they could compare terms offered to other clients.”
The National Audit Office released a report on PFIs on 18 January, three days after Carillion went into liquidation. It found the use of PFIs had declined since the 2008 financial crisis because the cost of borrowing per contract had risen.
The NAO reported 700 operational PFI and PF2 deals were currently operational with a capital value of about £60bn and annual charges for these deals were worth £10.3bn in 2016-17. More than 90% of the government’s capital investment is publicly financed.
“Even if no new deals are entered into, future charges which continue until the 2040s amount to £199bn,” the NAO said in its report, referencing the Treasury’s PFI and PF2 database.