The implosion of Carillion will have profound repercussions

by Richard Harrison, Managing Director

There will be an inevitable post mortem following the very publicised implosion of Carillion this week. No doubt this will inform the political narrative moving forward. The private sector delivers many of our public services and Carillion offers many lessons for our policy makers and public sector commissioners to reflect upon.

Thousands of UK employees are now worrying about their jobs causing real distress to many families; equally thousands of businesses are owed money by Carillion which could cause further bankruptcies, whilst vital public services still need to be delivered through a period of uncertainty.

It’s easy to take a binary view that all private sector provision is bad, with profiteering on a huge scale, and all publicly delivered services are good.  As ever the truth is more nuanced than that. I’ve seen very good examples and poor examples of both private and public sector provision.

Competition is a double-edged sword. It’s good if taxpayers get a better price from a diverse array of bids, but bad if overly aggressive bidding to secure contracts leads to delays in completing projects; or worse, contract or provider failure. It is important to note that there is always a cost to failure, both a financial cost but, even more importantly, a human cost.

The private sector often operates on thin margins and significant debt levels in fiercely competitive markets.  It’s incumbent on providers to ensure that they have sustainable business models, which don’t over reach when bidding for contracts and growing their businesses. Robust governance processes should mean they understand the risks of the contract they are bidding on and have clarity on historical and future contractual commitments. It is important providers fully understand their aggregate position and a sustainable strategy is adopted.

Likewise, in times of austerity, it can be tempting for commissioners to focus overly on price causing a race to the bottom.  That way of thinking can lead to very poor outcomes for the public if it turns out that providers who win the tender process bid below the cost of delivering those contracts or made unrealistic assumptions around risk.  It’s an economic reality that costs need to be covered by the contract price or one of two things will happen; the costs will pop up elsewhere through mechanisms such as contract variations, or the contract (and maybe the provider) will fail.   In both scenarios, this leads to higher avoidable cost and unnecessary pain.

Public Sector Commissioners need to ensure that contracts are constructed in a way, which shapes healthy, sustainable markets. That means actively shaping markets so that the right number of providers are operating in the markets with due consideration for local employment, SME’s and the local economy, what the likely delivery costs are and thorough due diligence is undertaken on providers and their bid proposals.

Once contracts are awarded, it then becomes important that the client side processes are in place to actively manage the contract so that it delivers the outcomes being sought. This includes ensuring that appropriate democratic oversight is included on public service contracts. This is an area where we’re seeing lots of progress since the Olympics and tagging debacles, but where there’s still a lot more work which can be done.

The team at CIPFA C.Co continue to work with public bodies and providers across the UK to support them to improve capabilities.  Whether its supporting organisations to understand what is a fair cost of care, benchmarking, supporting due diligence exercises, improving contract management capabilities, or supporting the insourcing/outsourcing process, the same lessons are apparent; there is a cost of failure, and quite often that failure is entirely avoidable.

Do you agree with my reflections? Please feel free to comment.

Get in touch with me at if you would like any further information on how CIPFA C.Co can support your organisation in any of the areas mentioned.

For all our latest news and views, you can follow our company updates on LinkedIn: or read our latest news via our web site 

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How good governance can be a competitive advantage for public service companies

Richard Harrison, Managing Director.

Seismic changes are taking place across the UK in public service delivery.

Almost every council that I’m aware of is, or has, reviewed their operating model to decide whether they should spin out existing services into separate companies, social enterprises or shared services. The types of spin out vary considerably in terms of the scale of their operations, the market they operate in, and how commercial or social their purpose is.

The team at C.Co have been partnering with councils and spin outs across the UK to help decide whether creating a new organisation is right for them, and where it is, working with them to articulate their ambition, develop commercial plans and the capabilities to deliver them.

On occasion, we get invited to be involved when a spin out hasn’t been working as well as expected; exploring options for improvement or providing support to insource services back into the council.

There’s no silver bullet to creating a successful spin out but there are areas, which if focused on, will contribute to success.  Four areas resonate with me:

  1. A robust business case, which articulates the outcomes the council is trying to achieve, along with costed and risk assessed options to achieve them.
  2. A robust competitive strategy, business and commercial plan. Developed with an in depth understanding of the market the new entity will be operating in.
  3. The capabilities, resources and culture to be able to deliver the plan.
  4. A clear governance framework, which is transparent, understood and enables the ambition to be achieved.

The final area of governance does not get much consideration so I’d like to focus on how governance can be a competitive advantage or disadvantage.  I’ll detail the other key areas in future posts.

A good governance framework is a critical success factor for the creation and successful operation of a council company. Focusing on governance reflects good practice and high performing organisations (in the public and private sector) prioritise the continuous improvement of governance as a corporate priority.

Where governance works best is when it is considered, articulated, understood and enacted.  There are some great examples of governance systems for council companies, which foster positive relationships, allow risks to be proactively managed, ensure the appropriate level of control and flexibility, and are aligned to council constitutions and company law.

At its best, having good governance arrangements allows for a competitive advantage which drives the business forward to success.

At its worse, it is opaque, poorly thought through or not enacted.  This can lead to confusion, poor risk management, conflicts of interest, deteriorating relationships, under-performance, poor value-for-money, reputational damage and compliance issues.

C.Co believes a robust Governance Framework for Local Authority Trading Companies should:

  • Reflect the principles of good governance set out in the CIPFA Delivering Good Governance in Local Government Framework.
  • Be transparent and understood.
  • Specify the distribution of rights and responsibilities between shareholders, the board and managers/employees, commissioners and contract management.
  • Balance the need for control and flexibility appropriately at each level.
  • Provide the structure by which company objectives are set.
  • Ensure company boards can be held to account and that an administration’s priorities be fulfilled.
  • Enable each company board to have the operational flexibility to be innovative and run the company within the agreed parameters.
  • Enable investment conversations to play out.
  • Spell out rules and procedures for making decisions.
  • Separate the role of contract management, the shareholder, and the board (of Directors).

To achieve these characteristics there will be a number of roles, capabilities and processes in place to ensure good governance is embedded across the system.  These would be clearly documented to ensure transparency, common understanding and consistency. There should also a requirement for training and engagement sessions so that the arrangements are clearly understood by members, officers, company directors and company employees.

The organisations we see doing well have ensured that board members are provided with the opportunity for training or mentoring.  Investing time and energy in making sure key stakeholders understand their role and have clarity on legal responsibilities (and liabilities) and how to run a dynamic and effective board are vital ingredients to the success of the company.

Do you agree with my suggested areas for success? Is a good governance framework a critical success factor? Do you have examples of where governance has led to competitive advantage or disadvantage? Please feel free to comment.

Get in touch with me if you would like any further information on how C.Co can support your spin out in any of the areas mentioned.

For all our latest news and views, you can follow our company updates on LinkedIn: or read our latest news via our web site