• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Helen Randall: Learning the lessons of Carillion

0
  • by Guest
  • in Blogs · Resources
  • — 23 Jan, 2018

Photo (cropped): Elliott Brown, Flickr, CC

Carillion went into liquidation with £1.7bn in debt and casting uncertainty over 450 public sector contracts. Helen Randall suggests local government might look again at the way it selects providers while customers should focus on their due diligence before filling the gap left by the collapsed company.

Having negotiated contracts with Carillion and other major contractors for public services since the mid-1990s, I have been reflecting on what lessons good and bad we can learn and how the public sector’s procurement processes could be improved.

Carillion had expanded beyond construction to services: facilities management, grounds maintenance even the legal services and IT.

Of the major contractors in the public sector marketplace, Carillion had developed one of the most sophisticated approaches to bidding, so it was perfectly placed to win opportunities for PFI/PPP and Building Schools for the Future contracts which combine construction, services and finance.

Quality and price

Most PFI contracts were evaluated on a 60% quality, 40% price basis. It is now alleged Carillion’s bids may have been dangerously low because falling profits made it desperate for new revenue. However, if a public authority has applied an evaluation ratio where price represents anything more than 30%, then inevitably price will always trump quality. Moreover, public authorities may only reject the “abnormally low” bids, and even then only after they have taken the trouble to clarify them.

Often even after evaluating with a scoring mechanism weighted in favour of quality, if all bids have met the authority’s minimum quality threshold, the contract gets awarded by default to the bidder with the lowest price.

As we have learnt from Carillion, in the long-term the public sector incurs cost if its private sector contractors fail because a contract is not sustainable. So it makes sound financial sense and is value for money to ensure appropriate emphasis is placed on quality (70% plus) when setting evaluation criteria and sufficient time is set aside to probe the financials behind the bid rather than rushing to close negotiation and award the contract.

Prophets of doom

There is also an issue about competition. Where tendering a big contract in separate lots, it is possible to specify that a tenderer cannot be awarded more than a certain number of lots in order to ensure market spread and increase resilience. However, where opportunities are tendered by separate authorities, you cannot rule out the contractor on the basis of their market dominance. In fact, the standard selection questionnaire actively disadvantages providers who are start-ups or new entrants.

If we genuinely believe more market diversity is important to strengthen competition and ensure resilience, then we have to be more adventurous in the way we select providers and change the questionnaire and shortlisting criteria.

Most PFI and PPP contracts had to be let on standard terms and if the authority wanted to vary the terms, their lawyers had to plead the case with government. As PFI progressed, the contracts became more sophisticated, but in my view, the standard terms should have incorporated better early warning mechanisms and more transparency for the public sector.

The Carillion scenario reinforces the importance of a robust contract and retrospectively vindicates some legal negotiators such as myself, previously characterised as “prophets of doom”.

Currently, Carillion’s public sector customers will be negotiating with the parties now in control of the contract whether the liquidators, Carillion’s subcontractors (who may be employing the bulk of the workforce) or the new contractor who has taken over the contract. Some authorities are considering bringing Carillion contracts back in-house.

Now is the time to look before you leap. In particular, it you will need to conduct due diligence to minimise the costs and liabilities which may be passed back to the authority. Your due diligence should cover staff, pension payments, transferring contracts, assets and intellectual property rights. Only when the full extent of the transferring liabilities are understood, should you negotiate the terms of the deed of novation or variation.

Helen Randall

Helen Randall, is a partner at Trowers & Hamlins LLP

Share

You may also like...

  • The vaccine may help settle cash flows but inflation remains a risk 13 Jan, 2021
  • Ending PFI contracts: Top tips for managing the process 23 Jun, 2020
  • And here is the LGPS news: It’s better than you read in the press And here is the LGPS news: It’s better than you read in the press 26 Feb, 2020
  • Agent151: Nuclear chickens and the cost of caring for the elderly Agent151: Nuclear chickens and the cost of caring for the elderly 8 Feb, 2017

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 2 days ago

    How can local government ‘build back better’?: Beverley Gower-Jones looks at the options for driving small business entrepreneurship in clean technologies. Innovation is essential for local authorities to save money and reduce emissions, it is the… dlvr.it/RtT3nS pic.twitter.com/bSMB6OG70t

    Room151 3 days ago

    Helen Randall: Spelthorne report places spotlight on ‘controls’: Fresh criticism of Spelthorne Council raises the question of what “good” controls look like when negotiating a property deal. Spelthorne Council’s continuing debacle over property… dlvr.it/RtSPhy pic.twitter.com/9uCOJgBcH6

    Room151 3 days ago

    Step-out strategies: Hitting the sweet spot between liquidity and ultra-short duration: Sponsored article: Jemma Clee describes how an ultra-short duration strategy can help local authorities enhance returns. Despite the expectation of a low, and… dlvr.it/RtSPZb pic.twitter.com/pdXPpv5lcN

    Room151 4 days ago

    What role will climate change have on the pricing of government bonds?: Sponsored article: Kerry Duffain finds that “vulnerability and resilience to climate change” have a significant impact on the cost of government borrowing. Ardea Investment… dlvr.it/RtNKv7 pic.twitter.com/wDjT31x4Yt

    Room151 4 days ago

    ESGenius: Slashing emissions will fuel green growth for decades: Sponsored article: Velislava Dimitrova argues that a big enough investment could mean transition to a low, or no, carbon economy can become a reality. The world needs to slash carbon[...] dlvr.it/RtKZJp pic.twitter.com/cd8S3ijERl

    Room151 4 days ago

    Prudential code: “Not perfect, but its heart is in the right place”: The new Prudential Code offers revised rules for borrowing. Nikki Bishop is sceptical it will work while Gary Fielding offers his support. Nikki Bishop I have been asked to give[...] dlvr.it/RtKZFh pic.twitter.com/OriN28lXcb

    Room151 5 days ago

    Tremendous report from @MarkSandford3 citing @room_151 no fewer than six times (despite what the @lgcplus fact checking/counting dept might tell you) #localgov commonslibrary.parliament.uk/research-brief… 1/5

    Room151 2 weeks ago

    Dan Bates: Capitalisation directions are not the only tool for rebuilding finances: Dan Bates argues deep seated problems are contributing to a rush for capitalisation directions. For some time now we have been reading that a number of councils are in… dlvr.it/RspKff pic.twitter.com/xRRsgVim9u

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Councils reassess financial plans after late correction to top-ups and tariffs
  • Next story Survey reveals “pernicious” lack of trust in London CIV among stakeholders

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.