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Mon May 25 2020

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Reform demands revived as nervous creditors wait on Interserve

18 Mar 19 The weekend drama at Interserve has raised the spectre of Carillion – different outcomes but similar themes.

Subcontractors and suppliers owed money by Interserve naturally fear they may never see the money they are due. Although Interserve has re-emerged intact from its Friday traumas, it is a different legal entity.

There is every indication that new Interserve will honour the debts and liabilities of old Interserve. "For employees, clients and suppliers at Interserve it is business as normal," marketing and communications manager Emma Millward said on a social media channel. "Rest assured there will be no delay to payments. Customers and subcontractors will see no difference to our services as we continue to trade as normal."

On Friday 15th March 2019 Interserve plc went into administration after shareholders voted down the board’s preferred deleveraging plan by 59% to 41%.

Detailed contingency work had been carried out prior to the shareholder vote to prepare for defeat. It was agreed that the best way to avoid substantial loss was to appoint administrators to Interserve Plc and for the administrators to sell the business and substantially all of its assets to a specially formed company, called Montana 1 Limited, which will shortly be renamed and will trade as Interserve Group Limited.

Despite assurances, for the time being at least there remain doubts and fears.

“At present the outcome of any pre-pack administration insofar as Interserve’s supply chain is concerned remains unclear,” said Rudi Klein, chief executive of the Specialist Engineering Contractors’ (SEC) Group.

The fall of Interserve plc comes just 14 months after the collapse of Carillion, a company of a very similar shape to Interserve – traditional construction contractors selling their souls to janitorial services and making indigestible acquisitions.

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It has prompted a revival of demands that remain unsatisfied – for reform in the procurement of public services and the procurement of construction work.

Rudy Klein said: “Yet again, the financial models adopted by these large outsourcers pose an ever-present and potentially very damaging risk to their supply chains. Following Carillion’s collapse, it was generally assumed that there would be a radical re-appraisal of the public sector’s approach to construction/infrastructure procurement. This hasn’t happened. Again, we urge the government to:

“One: abandon the policy of letting high value contracts to outsourcers and, instead, break down contracts into smaller lots to facilitate greater SME participation in the procurement process.

“Two: insist on the use of new model procurement options that foster greater team-working amongst all those involved in the delivery of construction /infrastructure works.

“Three: Insist on greater payment security for construction supply chains including the use of project bank accounts (ring-fenced bank accounts through which subcontractors are paid) and/ or direct payment from public sector clients to subcontractors; if used, cash retentions should also be protected.”

There remain those who argue that the only answer is the abolition of outsourcing. They say that public sector organisations – hospitals, schools, local councils – should return to directly employing their cleaners, caterers and security guards. “The whole outsourcing culture needs to end, with contracts being taken back in house at the earliest opportunity,” is the policy of the Unite union, set out in its Ending Bandit Capitalism document – although it is not clear that it thinks this should extend to construction work.

Following Interserve’s restructuring, Unite national officer Colenzo Jarrett-Thorpe said: “Interserve is the latest example of bandit capitalism and this demonstrates that the government’s outsourcing business model is smashed beyond repair. The government has been asleep at the wheel since Carillion’s collapse last year and if no action is taken we face further corporate collapses.”

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