June 25, 2018 / 4:36 PM / in 4 months

Taking lessons from Carillion, Britain toughens outsourcer rules

(Reuters) - Britain is preparing to toughen up contract terms for private companies operating in the public sector over the next 12 to 18 months after the collapse of outsourcing group Carillion, a source familiar with the plans said on Monday.

A worker walks along a crane on a Carillion construction site in Smethwick, Britain January 29, 2018. REUTERS/Darren Staples

The source requested anonymity to discuss the sensitive matter.

The government, which awards 200 billion pounds of public contracts to private companies every year, plans to force those doing critical work for government departments to provide a “living will” agreement that would pass their work to another supplier in an emergency.

It will also demand that a number of key performance indicators be published, such as how much the contractor has paid suppliers, delivery times and feedback from customers so that the taxpayer-funded services are more transparent.

Cabinet Office Minister David Lidington said earlier on Monday he was also seeking to make it easier for smaller companies, charities and social enterprises to take on large government contracts, and would demand more transparency and social awareness from public service providers.

Carillion collapsed in January when its banks halted their funding, leading to the loss of thousands of jobs and a political row over Britain’s outsourcing of public services to private companies.

Several other major outsourcers such as Capita and Mitie have had a crunch in recent years due to margin pressure from more stringent public and private sector budgets and an overstretch in their capabilities.

Chief Executive Rupert Soames of Serco, which provides various services for government departments, suggested earlier this year that the sector was in need of a full overhaul of contract conditions to allow for more flexibility in unexpected circumstances.

The government is seeking to avoid large public sector service providers running into the kind of liquidity crunch that affected Carillion and caused a domino effect across a series of smaller suppliers it used.

Ongoing discussions with outsourcing companies are “relatively fluid,” a second source said, with the goal of having changes take effect in new contracts in the next 12 to 18 months. The review will be made public in the coming months when finalised.

Writing by Elisabeth O'Leary. Editing by Jane Merriman and Richard Chang

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