Carillion: Government risk assessments published

23 May 2018

The collapse of Carillion raised significant concerns about the Government's relationship with and management of its major suppliers, and the potential impact on the delivery of important public services.

On 24 January 2018, the House of Commons agreed that the Government's risks assessments of its Strategic Suppliers should be released to the Public Accounts Committee.

The assessments are subjective documents intended as confidential advice. However, the Committee does not consider that the Carillion papers contain live and material commercial risks as the company is no longer trading.

Each Strategic Supplier is assessed on a Red-Amber-Green (RAG) scale. Suppliers can also be designated a Black ‘High Risk' status.

The Carillion assessments show that:

Although Carillion had been rated Amber owing to performance against contracts with the Ministry of Defence and Ministry of Justice, it was not until after Carillion issued a profit warning in July 2017 that Government downgraded Carillion to Red. It appears the Government was not aware of Carillion's financial distress until this point.
In November 2017, officials recommended a provisional Black rating for Carillion. However, following representations from the company, the Cabinet Office did not confirm the designation. Carillion collapsed less than two months later.

The risk assessments relating to other Strategic Suppliers raise concerns about their performance against contracts, and about the relationship between Strategic Suppliers and Government.

The Committee has at present chosen not to publish these papers but it reserves the right to do so. It now intends to take evidence to explore the issues and pursue concerns about Suppliers raised in the papers and previous Committee reports.

Chair's comments

Comment from Committee Chair, Meg Hillier MP:

"Government has become dependent on large contracts to deliver public projects and services. Great secrecy surrounds them. If a company providing a number of these contracts fails, this is bad news for service users and the taxpayer.
The Strategic Supplier risk assessments provide an insight into the relationship between Government and Suppliers and give rise to many questions we want to pursue.
We recognise there are commercial sensitivities around that relationship. We are also alert to the potential impact on jobs and small businesses should certain information be made public. We have been mindful of the workers and businesses who could lose out through no fault of their own if certain information is in the public domain.
But equally we are concerned about the lack of transparency and its potential to create an environment where poor practice takes root.
Taxpayers deserve to know where their money is going, that their investment is being managed wisely and that Government is providing effective oversight.
The Carillion papers identify clear and compelling problems with the business in the months leading to its collapse. Government had the opportunity to deal with them.
Taxpayers, service users and people and businesses plunged into financial difficulty by Carillion's demise deserve to know what happened.
Other select committees have done some excellent work on aspects of the Carillion affair. We want to look wider and better understand the relationship between Strategic Suppliers and Government.
When a contract breaks down, Government is the provider of last resort. While it did not bail out Carillion – the company went in liquidation – it did inherit responsibilities and costs, ultimately borne by taxpayers, that would otherwise not be met.
Failure of essential services is not an option so we need to understand the potential risks to the taxpayer.
The fall-out from Carillion's collapse and the resulting burden on the public purse is still not clear. We will be seeking clarity on these critical matters and probing Suppliers and Government about what they are doing to ensure such a catastrophic failure is not repeated."

Deputy Chair's comments

Comment from Committee Deputy Chair, Sir Geoffrey Clifton-Brown MP:

"The Government's RAG scale for Strategic Suppliers appears to be too slow and clunky. Profit warnings for Carillion were issued in July and September 2017 and yet a high-risk recommendation to Ministers was not made until 29 November 2017. The City, in contrast, knew well before July 2017 that Carillion was in trouble.
Too many Government facilities contracts were concentrated in one large firm giving the impression that it was too big to fail, hence the perception that the Government would bail them out when push came to shove.
The Carillion Board's erroneous belief that the Government would not let the company collapse appears to have contributed to their failure to take the necessary action to save the company and prevent the sad loss of jobs and damage to numerous suppliers and subcontractors when Carillion went into liquidation."

Further information

Image: Elliot Brown