Post-Carillion, U.K. Government Revamps Approach to Outsourcing

(Bloomberg) -- The U.K. government has drawn up a package of reforms to improve the way public services are outsourced, after construction firm Carillion Plc became one of the biggest corporate casualties in British history this year.

Outsourcing firms, including Serco Group Plc and Capita Plc, will issue “living wills” over the coming weeks, Cabinet Office Minister David Lidington plans to say in a speech Monday, according to an advance copy of his remarks. Living wills are plans to help with the dissolution of a company in the event of its collapse. Banks were also forced to create them in the wake of the 2008 crisis.

Post-Carillion, U.K. Government Revamps Approach to Outsourcing

When Carillion failed, “we did not have the benefit of key organizational information that could have smoothed the management of the liquidation,” Lidington says in the remarks. “By ensuring contingency plans can be quickly put in place in the very rare event of supplier failure, we will be better prepared to maintain continuity of critical public services.”

Carillion filed for liquidation in January after the government refused to bail it out, leaving almost 3,000 people out of jobs, and 30,000 Carillion suppliers and subcontractors with 2 billion pounds ($2.6 billion) in unpaid bills. The situation highlighted a litany of other problems with outsourced public contracts and buoyed opposition lawmakers in their calls for services to be brought back in-house.

‘Crystallized Issues’

In June, Lidington said critics of outsourcing had been too quick to use Carillion as a reason to renationalize some services and bring others back under state control, claiming it would cost about 176 billion pounds if the government were to do so. But he said the collapse had “crystallized issues” that needed to be addressed. A number of the big providers have been working this year with the government, including lending employees, to come up with a package of reforms.

Other reforms include a requirement that the government consider the social and economic benefits of contracts before awarding them to third parties. Starting next summer, departments will have to look at how a contract helps small businesses, provides employment opportunities for disabled people and reduces harm to the environment.

The plans come after another outsourcing scandal emerged last week. For the second time this year, Capita failed to send out the correct letters to women about cervical screening tests and results affecting more than 40,000 patients. Capita said in a statement that there was “no current evidence of harm” and apologized for the blunder.

Post-Carillion, U.K. Government Revamps Approach to Outsourcing

Serco has volunteered to be the first company to provide its living will, the Cabinet Office said in a statement. Chief Executive Officer Rupert Soames has been vocal about the reforms needed from government to improve the outsourcing of public services and said he welcomed the changes announced by Lidington, according to the statement.

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