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Wed November 14 2018

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Ministers ignored advice to downgrade Carillion

23 May Carillion representatives managed to persuade the government to stand by the company, against civil service advice, less than two months before its collapse, it has emerged.

Documents released to the House of Commons public accounts committee (PAC) reveal that in November 2017 government officials recommended Carillion be designated a ‘high risk’ supplier.

However, following representations from the company, the Cabinet Office did not confirm the designation. Carillion collapsed less than two months later.

The Cabinet Office assesses each strategic supplier on a Red-Amber-Green (RAG) scale. Suppliers can also be designated a Black ‘high risk’ status.

Although Carillion had been rated Amber because of its performance on 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 the company to Red.

The PAC said today: “It appears the government was not aware of Carillion’s financial distress until this point.”

Recommendations from officials in November 2017 that Carillion be given a provisional Black rating were not acted upon.

The PAC said that the collapse of Carillion raised concerns about the government’s relationship with and management of its major suppliers.

"The government’s RAG scale for strategic suppliers appears to be too slow and clunky,” said PAC deputy chair Sir Geoffrey Clifton-Brown. “Profit warnings for Carillion were issued in July and September 2017 and yet a high-risk recommendation to ministers was not made until 29th November 2017. The City, in contrast, knew well before July 2017 that Carillion was in trouble.”

Committee chair Meg Hillier said: "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.”

She added: “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.”

Read the full Public Accounts Committee report: Government risk assessments relating to Carillion

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