by GK Strategy 18th January, 2018

What will the collapse of Carillion mean for public sector procurement?

Be in no doubt that the collapse of Carillion will have a significant impact on the public sector procurement and outsourcing environment of the future.

Public and regulatory policy will be shaped in its aftermath, and questions will be asked in every public body in every part of the country, not just about exposure to Carillion but about the strength and quality of their procurement processes.

Things will change as a result, and political dividing lines will develop afresh.

However, government spending in the private sector is so extensive that unpicking it all would be an impossible task.

As a short-term measure, there will no doubt be some local authorities that will take Carillion services back in-house as the quickest and simplest solution to an emergency situation. However, in practice, the aftermath will more likely focus on how to improve procurement processes to ensure better oversight and control and less risk to the public sector.

There are a number of questions that those with an interest should think through carefully:

  • Market Diversity: Will the impact be good or bad for challenger brands and new market entrants? Any additional barriers and requirements that might be required in a tender process would usually be a barrier to entry. So we might see more complex procurement that could serve to drive out competition from the market and ironically favour the larger established players.
  • Higher Prices: Will businesses be more reticent to price contracts on the basis of low margins? Does the risk profile change for outsourcers and if so will this drive up the cost of goods and services to the public sector?
  • More Frameworks: Will a cash-strapped public sector be prepared to spend more to safeguard their interests? Will we see more frameworks, and smaller contracts as a result?
  • Political Pressure: For those that are ideologically uncomfortable with outsourcing this event will provide a useful reminder of the real impact of failure. Expect the trade unions and the labour movement to be at the forefront of driving a renewed debate about the role of the private sector in the delivery of public sector contracts. This will shape the Labour party public sector reform narrative.
  • Risk Management: Is failure inevitable and acceptable? Already we have seen some discussion that failure is an inevitable consequence of a competitive marketplace, but when faced with the very real human consequences, can this really be a justification for the status quo? Will this be accepted by the centre right or will we see pressure and discussions in the Conservative party about failure of regulation and the need to reduce risk?

As the discussion develops over the next few weeks so blame will be apportioned, the post-event narrative will take hold.

Underneath these hardened positions, things will change.

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