State is not great

The collapse of Carillion is being seen by some as evidence that public sector projects should not be given to private companies. Labour and the trade unions argue that this work should be undertaken by the state, as though it were a business with its own labour force. Yet state-run enterprises would still need to subcontract projects to the private sector. All that would change is that the taxpayer would pick up the bill for failure, something that should be avoided in this case.

Carillion’s demise, therefore, must not be used as an excuse to take public projects “back in-house” as though that were the natural order of things or a panacea. That way lies inefficiency, shortages and cost overruns. This story is one of incompetence and hubristic management – not an indictment of outsourcing. Indeed, it is not the Government’s contracts that have caused Carillion’s problems so much as its private work.

But a host of questions remain unanswered. Why was Carillion given new contracts even when its difficulties were well known and why did the Crown representative, employed to keep watch over the public interest, leave the post just as problems beset the company? Why was it allowed to keep suppliers waiting for months before paying them? If Carillion’s solvency depended on withholding payments to small businesses that rely on this cash to keep going, something was clearly amiss.

Another issue is why so much public work was given to one company. Carillion had more than 450 government contracts. The Government has promised to place one-third of taxpayer-funded contracts with small and medium-sized enterprises. That pledge needs to be delivered.