The lesson to be learnt from Carillion is that we need more private sector and charities involved in delivering public services, not fewer.

Dr Chris O’Leary is a specialist in public policy and is a senior lecturer in the Policy Evaluation and Research Unit.  Much of his work before joining PERU was around modelling need and demand in terms of multiple needs, prevention and integration of services. Chris also teaches on social policy and evidence-based policy within the Department of Sociology.

The collapse of Carillion has raised some significant questions for around the future delivery of a number of different public services and public infrastructure projects. The collapse has been followed by a series of calls for the Carillion contracts to be brought in-house or back into the public, and criticism of the Government for failing to bailout the company with taxpayers’ money. But it has also raised fundamental questions about whether and to what extent private sector companies should be involved in the delivery of public services, with suggestions that we should move towards replacing private sector companies and charities with public sector provision of public services.

These calls are of course completely understandable. The aftermath of Carillion’s fall will takes months or even years to be resolved; they are not just immediate questions about whether school meals will be delivered or what will happen to current hospital construction or railway planned maintenance works. They are also the many small companies and charities that work alongside Carillion that now face huge financial losses, as well as public sector employers who must now do extra work to deal with the chaos that is now likely. While some will have been engaged in contingency planning since Carillion announced its first profits warning back in July last year, many will not have done so, and will now be faced with the mammoth task of dealing with the fallout. It is clear that the public purse – that taxpayers – will face huge costs of dealing with the collapse. So wouldn’t it be better, in the long term, if government didn’t commission private sector companies and charities to deliver such services, but rather delivered them directly.

While such calls may be understandable, they also ignore (a) that many private companies and charities are involved in delivering public services, and do a good job doing so, providing excellent value for money; (b) private companies and charities have always been part of a public services. GPs, for example, are the largest private sector provider of NHS services, and have been so since the Atlee Government set up the NHS in the 1940s; and (c) the increase in private sector involvement, particularly in big capital projects, followed many years of government failures in large projects and complex public services – failures that lead to huge overspends and projects being delivered months or years later than planned. The use of Private Finance Initiative and Public Private Partnerships, for example, both championed by the Labour government of 1997 to 2010, was an attempt by government to reduce and transfer risks associated with these sort of projects. Ignoring this background, and returning to the ‘good old days’, risks repeating the costly failures that were some common before the 1990s.

The issue here is not the use of the private companies per se, but rather the increasing concentration of public sector contracts in the hands of a small group of large companies. Evidence suggests that overly bureaucratic procurement rules active discourage small companies and charities from bidding for government contracts, and that public sector commissioners believe that large companies with extensive track records of public sector work are less risky choices than small companies and charities. This means that contracts are increasingly awarded to a small number of large companies which, as we have seen from Carillion, is in reality more risky. Changing the procurement rules to enable more, and more diverse, providers will spread the risks and reduce the potential impact if one contractor goes bust. It would also directly benefit local economies, in a way that contracting large, often multi-national, companies simply doesn’t do.

But there is also a more strategic reason for continuing the use of private companies and charities in the delivery of public services. Large, monolithic and monopolistic public sector providers are unlikely to generate the kind of innovation that we need to see in how public services are organised and delivered if our public services are to address the major long-term challenges we face.  These challenges – of how to increase productivity; of how to respond to increasing costs, increasing and increasingly complex demand; of how to manage with fewer resources – require fundamentally different ways of organising and delivering public services. We need to experiment, to innovate, to be brave about doing things differently. And, for me, that requires increasing the provider base, encouraging cooperation, collaboration and competition between different providers, engaging with private companies, charities and public sector providers. The lesson to be learnt from Carillion is that we need more private sector and charities involved in delivering public services, not fewer.

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