Two highly critical parliamentary reports call on a change of culture and question the timidity of government in its dealings with large contractors.
The Work and Pensions and BEIS committee report published on 16 May 2018, called on government to carry out an “ambitious and wide-ranging set of reforms” to “reset our systems of corporate accountability”. These recommendations included a strengthening of the current financial and pensions regulations.
The report shone a light on its culture of late payments to subcontractors:
“Carillion relied on its suppliers to provide materials, services and support across its contracts, but treated them with contempt. Late payments, the routine quibbling of invoices, and extended delays across reporting periods were company policy. Carillion was a signatory of the Government’s Prompt Payment Code, but its standard payment terms were an extraordinary 120 days. Suppliers could be paid in 45 days, but had to take a cut for the privilege. This arrangement opened a line of credit for Carillion, which it used systematically to shore up its fragile balance sheet, without a care for the balance sheets of its suppliers.”
The report also savaged Carillion’s senior management, criticising Richard Adam, Carillion’s Finance Director, for the giant’s “aggressive accounting policies” and Chief Executive Richard Howson for his lack of control “under his misguidedly self-assured leadership”.
Summing up, Frank Field MP, Chair of the Work and Pensions Committee, said:
“Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners. They rightly face investigation of their fitness to run a company again. This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn. Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”
Government ignores its own risk assessment
The subsequent Public Accounts Committee (PAC) report on 23 May 2018 also criticised the government for ignoring its own traffic light warning system for assessing the financial risk of strategic suppliers with annual revenues of more than £100M.
PAC found that despite being given an amber rating because of its performance on Ministry of Defence and Ministry of Justice contracts, Carillion was only downgraded to red after it issued a profit warning in July 2017. It was then only nine days after the company had won a schools building contract in late November that the Cabinet Office provisionally designated Carillion as high risk.
Sir Geoffrey Clifton-Brown, deputy chair of PAC, said the government’s traffic light warning system appeared to be “too slow and clunky”, while Committee Chair, Meg Hillier MP said government had “become dependent on large contracts to deliver public projects and services. Great secrecy surrounds them”.