‘A new Car­il­lion would shock the world. We are seen as the gold stan­dard’

Bri­tain’s long­est-serv­ing au­di­tor gen­eral tells Liam Halligan why the out­sourcer’s col­lapse should of­fer a warn­ing to min­is­ters

The Sunday Telegraph - Money & Business - - Business - Sir John Bourn The Sun­day In­ter­view

Sir John Bourn is not the type to seek the lime­light. But this sum­mer, aged 84, the for­mer au­di­tor gen­eral de­cided to give his first ever tele­vi­sion in­ter­view. I ask him why. “The rea­son,” he said, “is that I’m an­gry and dis­ap­pointed about Car­il­lion.”

Bourn is noth­ing less than a Whitehall leg­end. He was au­di­tor gen­eral, the most se­nior public spend­ing watch­dog, for 20 years – longer than any­one else in his­tory. The Na­tional Au­dit Of­fice, which he ran from 1998 to 2008, in­de­pen­dently scru­ti­nises all govern­ment spend­ing.

So how would Bourn de­scribe the Govern­ment’s over­sight of Car­il­lion, the con­struc­tion gi­ant that chaot­i­cally im­ploded back in Jan­uary?

“In­ad­e­quate – be­cause the Govern­ment failed to recog­nise a ma­jor sup­plier was tak­ing on more work than it could han­dle and con­tin­ued to give work when it didn’t have to,” says Bourn, talk­ing to me on cam­era for a Chan­nel 4 Dis­patches in­ves­ti­ga­tion. “In­ad­e­quate – be­cause min­is­ters didn’t pay at­ten­tion to the range of Car­il­lion’s busi­ness and the weak­nesses in its fi­nan­cial po­si­tion, and should have looked to other con­trac­tors who could have bet­ter con­trib­uted to public ser­vice.”

The col­lapse of the UK’S sec­ond­largest con­struc­tion com­pany cost at least 3,000 peo­ple their jobs. It left be­hind a £1.2bn pile of un­paid bills – many of them owed to small sup­pli­ers and sub-con­trac­tors – and a record £800m pen­sion deficit.

Car­il­lion’s demise ex­posed a vast firm that mis­treated sub-con­trac­tors, ne­glected its pen­sion schemes and sys­tem­i­cally cooked the books – and this was an out­fit with 480 govern­ment con­tracts, in re­ceipt of bil­lions of pounds of public money.

Along with build­ing hos­pi­tals, roads and other in­fra­struc­ture for the state, Car­il­lion de­liv­ered nu­mer­ous “out­sourced” public ser­vices – from pro­vid­ing school meals to man­ag­ing prisons and col­lect­ing rub­bish.

Forced into “com­pul­sory liq­ui­da­tion”, the firm went un­der with to­tal li­a­bil­i­ties, ac­cord­ing to the Of­fi­cial Re­ceiver, of £7bn. Any hope of re­sale, ad­min­is­tra­tion or re­struc­tur­ing was deemed fu­tile. Af­ter years of ever-ris­ing share­holder div­i­dends and direc­tor bonuses, Car­il­lion’s debt­soaked foun­da­tions col­lapsed as it ran out of cash.

Bourn is deeply con­cerned that Car­il­lion was awarded eight size­able public con­tracts, worth al­most £2bn, af­ter July 2017. That was the month the firm is­sued an £845m profit warn­ing, the big­gest the City had seen in a gen­er­a­tion, which in­stantly knocked 70pc off its share price.

“You couldn’t have had a bet­ter warn­ing to be care­ful,” says Bourn. “It was ob­vi­ous Car­il­lion was in big trou­ble – it was all rather like a Ponzi scheme be­cause it was tak­ing small con­tracts as a way of keep­ing the big­ger con­tracts go­ing.”

Bourn was “as­ton­ished” Car­il­lion kept get­ting big govern­ment or­ders. “Weren’t min­is­ters and civil ser­vants wor­ried about what was in the news­pa­pers? So many hedge funds were bet­ting Car­il­lion would col­lapse – and that was clear for all to see.”

Car­il­lion was “an es­pe­cially dis­ap­point­ing out­come”, says Bourn, be­cause “sound pro­cure­ment guid­ance prin­ci­ples, built up over decades” were ig­nored. “If you’re go­ing to give a con­tract to a strate­gic sup­plier, you need to look at the whole busi­ness – how much cash it has, whether it’s pay­ing its sup­pli­ers,” says Bourn. “On these very sim­ple tests, de­spite all the talk of Car­il­lion be­ing all right, there was clearly some­thing very wrong.”

The Govern­ment in­sists con­tracts awarded dur­ing the au­tumn of 2017 in­volved other firms too in case Car­il­lion ceased trad­ing – but Bourn isn’t im­pressed. “That doesn’t get away from the fact that it wasn’t a good idea to give even par­tial con­tracts to Car­il­lion.”

With the Govern­ment spend­ing a to­tal of around £30bn a year with pri­vate con­trac­tors, the NAO issues count­less re­ports into in­di­vid­ual pro­cure­ment con­tracts. “Pro­cure­ment issues, the nuts and bolts of spend­ing public money, can some­times get ne­glected – so we need a cul­ture change,” says Bourn.

He notes there is “a bit of a temp­ta­tion some­times” to keep giv­ing con­tracts to the same few firms “if you’ve given them dozens of con­tracts al­ready and the sky hasn’t fallen in”.

He also talks about in­di­vid­ual govern­ment depart­ments and pri­vate sup­pli­ers “col­lud­ing” to un­der-bid to the Trea­sury. And he com­plains NAO re­ports and au­dits are of­ten “dis­missed or pushed to one side” by min­is­ters and other civil ser­vants.

Bourn is keen to stress, though, that “we are ca­pa­ble [of ] good pro­cure­ment”, and there are “many ex­am­ples of ex­cel­lent work”. To put Car­il­lion in con­text, he talks about the UK’S prepa­ra­tions for the 2012 Olympics. “We did that well,” he says proudly. “That’s be­cause we had a fixed and im­mov­able de­liv­ery date, a de­clared bud­get that was ad­e­quate, and the work and de­ci­sion-mak­ing were en­trusted to peo­ple who’d made their ca­reers in in­fra­struc­ture.”

Of­fi­cial in­quiries into Car­il­lion’s col­lapse have also fo­cused on “ag­gres­sive ac­count­ing” and the role of au­di­tors – not least KPMG, which au­dited Car­il­lion’s ac­counts for the en­tire 19 years of the com­pany’s ex­is­tence. “My view is that if you look at the rules for the prepa­ra­tion and au­dit­ing of fi­nan­cial state­ments, you are over­whelmed by their size and com­plex­ity,” says Bourn. “This com­plex­ity is re­ally get­ting in the way of proper ac­coun­tancy and au­dit, and gen­uine trans­parency.”

As the struc­ture of the au­dit in­dus­try comes un­der scru­tiny, Bourn says “it is crazy there are just four top-bracket au­di­tors – this sys­tem sim­ply doesn’t work and hasn’t for a very long time”. The for­mer au­di­tor gen­eral refers to the dom­i­nance of just four au­di­tors across the FTSE 250 as “an is­sue of oli­gop­oly, that needs to be in­ves­ti­gated by the Com­pe­ti­tion and Mar­kets Author­ity”.

Bourn calls the col­lapse of Car­il­lion “a wa­ter­shed mo­ment” – the phrase used by Jeremy Cor­byn back in Jan­uary, when he seized on it to at­tack the Govern­ment. Cit­ing Car­il­lion’s fail­ure, the Labour leader called for a wide­spread pro­gramme of na­tion­al­i­sa­tion, along with a muchre­duced role for pri­vate con­trac­tors in the pro­vi­sion of public ser­vices. Bourn has no such ide­o­log­i­cal agenda, but does want to see im­prove­ments in state pro­cure­ment prac­tices and far less public sec­tor waste.

“Car­il­lion was a wa­ter­shed mo­ment be­cause it was such a big com­pany, work­ing across such an im­por­tant range of ar­eas, in­volv­ing so many peo­ple,” he says. “It’s a wa­ter­shed be­cause it brings to­gether un­der one head­ing so many of the things that are wrong – and we must learn from it and un­der­take to bring in change.”

Con­scious of up­set­ting for­mer col­leagues, Bourn qual­i­fies his con­cerns. “If you look across all govern­ment con­tracts, many of them are awarded and man­aged prop­erly, so I’m not sug­gest­ing there is ut­ter chaos,” he says. “But it could be so much bet­ter, and this Car­il­lion case is es­pe­cially dis­ap­point­ing – not least given the small con­trac­tors in­volved.”

Could there be an­other Car­il­lion style col­lapse, I ask Bourn, and what would that mean? “There could – and I think it would be ex­tremely dam­ag­ing if we had an­other Car­il­lion any time soon,” he says. “Other coun­tries, which for so long have looked to us to learn about public pro­cure­ment, as the kind of gold stan­dard, would be shocked,” Bourn adds. “The world at large would think, ‘can the UK re­ally man­age these things, like it al­ways used to? I mean, are these peo­ple any good? Is Bri­tain los­ing its touch?’” “How to Lose Seven Bil­lion Pounds”, Chan­nel Four Dis­patches, is avail­able on Chan­nel 4 Catch-up

‘You couldn’t have had a bet­ter warn­ing to be care­ful – it was all rather like a Ponzi scheme’

‘So many hedge funds were bet­ting that Car­il­lion would col­lapse – and that was clear for all to see’

Sir John Bourn, the for­mer au­di­tor gen­eral, has warned that an­other Car­il­lion-style col­lapse may be pos­si­ble

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