Carillion – The Latest Government Contract to Backfire……

29 Jan

For the past 30 years successive UK Governments have been selling off or contracting out this country’s assets in one form or another.  From Nationalised Industries to the Gold Reserves held by the Bank of England.  Carillion is just another failed initiative in a catalogue or errors…..’

Government’s Bad Planning and Expensive Mistakes for Tax Payers……

Although the underhanded ‘quid pro quo’ dealing of the country’s ‘elite’ is as old as government itself.  The particularly damaging policy of ‘privatisation’ was Mrs. Thatcher’s personal priorities.  We’ll get to the whereabouts of the gold reserves and other costly mistakes later but for now here’s a partial list of some the country’s assets they sold:

  • British Petroleum  – 1979
  • British Aerospace – 1981
  • Cable & Wireless – 1981
  • Amersham International – 1982
  • National Freight Corporation – 1982
  • BritOil – 1982
  • Associated British Ports – 1883
  • Enterprise Oil – 1984
  • Jaguar – 1984
  • British Telecommunications – 1984o
  • British Ship Builders – 1985
  • British Gas – 1986
  • British Airways – 1987
  • Rolls Royce – 1987
  • B.A.A. – 1987
  • British Steel – 1988  
  • Water – 1989
  • Electricity – 1990

The party line was that competition was better for the consumer and released the government from its financial obligations to Nationalised Industries.  The empirical evidence would suggest otherwise.  There is an obvious reason why a public services and business are totally incompatible.  The number one priority of a public service is precisely that, to deliver the best possible service to the public. Whereas, a company’s main priority is to deliver profits for its shareholders, increasing year upon year.  This appears to have worked perfectly.  The level of service and investment has fallen whilst profits have risen…

In some instances there were sectors of publicly run companies which made wholesale privatisation untenable, so they were broken up; the profitable parts sold off, leaving the unprofitable parts in public ownership.  Nowhere is this more apparent than in the nuclear power industry.  Due to the uncertainty and long term nature of decommissioning, cleaning, storage of toxic and radioactive waste, the nuclear industries were put under the umbrella of British Nuclear Fuels in 1971.  However, in 1984 it became British Nuclear Fuels Limited, floated on the stock exchange, under the control of a Government appointed, ‘independent’ regulator

The profitable parts of the industry, such as power generation were given to the privatised electricity companies whilst the ‘hot potatoes’ remain in government hands and have been, you guessed it, contracted out.  The current estimates for cleaning up range from £119 billion to £220 billion over the next 120 years.  In all probability, as solutions to some issues  remain unresolved, the final bill could be 2 or 3 times the current estimate.  I fail to imagine that any company can give an accurate estimate of an as yet undecided way to proceed.  We currently have nowhere to store highly toxic, radioactive waste.  It isn’t only the nuclear power industry that has these problems.  Many of the privatised industries were broken up before sale, leaving a burden on the tax payer……

What Happened to the Country’s Gold…..?

The ‘gold standard’ existed into the 20th Century.  With an internationally agreed price it was a way of standardising currency exchange and demonstrating a country’s wealth.  On a  $10 dollar bill it used to state ‘This $10 bill is redeemable for $10 worth of gold’.  Not anymore.  The whys and wherefores of the gold standard was decided at a large meeting between the US Government, the banking dynasties and major company bosses during the Great Depression.  All of the key players attended:  Goldman Sachs, JP Morgan, Chase, Rockerfella, Rothschild; the list goes on.  Now that gold was no longer a measure of a country’s wealth the ‘Federal’ banks were free to sell gold on the open market.  They also used the country’s financial crisis to buy out smaller banks leaving us with monopoly of banking institutions we are all so familiar with…

Between July ’99 and March ’02 Gordon Brown, the then Chancellor of the Exchequer sold 58% of the Bank of England’s total gold reserves.  Some 395 tonnes of the 715 tonnes in the vault.  Not only did he sell it but he sold it in a depressed market.  Its value increased from the original $256.20 per ounce in July 1999, to $1,780.65 in just over 10 years…

The Private Finance Initiative – The Labour Parties Worst Policy Ideas……

The policy was so bad, as was the burden on UK Tax Payers that it was rebranded the Public Private Partnership, although this did nothing to improve public perception, change policy or lower the cost.  The basic premise of PFI/PPP was simple and sounded almost plausible…

How PFI Works……

The traditional way for the government to build a new piece of infrastructure, such as a hospital, a school, or a new road, was to raise the money in taxes, or borrow it from the Bank of England, and then pay contractors to deliver the project.  The finished project was then handed to the relevant Government department to run.  After that, the public sector would own the asset.  However, under PFI it was the builders who borrowed from private markets.  But how could the builders afford to make loan repayments until the endowment ended.  Simple, if you have the exclusive contract for maintenance… 

The state then pays the builder (or a separate company that buys out the contract) to effectively lease the building or piece of infrastructure over several decades; like an endowment mortgage the asset becomes wholey state owned.
The theoretical justification for PFI is that the private sector is more efficient at delivering and managing infrastructure projects than civil servants. PFI also supposedly transfers the financial risk of a construction project over-running from the public to the private sector.  Another benefit sometimes cited is that PFI financially incentivises builders to improve the quality and speed of their work too, since they will be the ones maintaining the asset after construction.  To top it off the U.K. Tax Payer also has the capital expenditure removed from the Treasury’s accounts.  Giving the impression that the economy is doing well.

Although in principle this seems like a workable idea which places hardly any burden on tax payers it came with one big caveat; the contractors had an exclusive right for the maintanance of the building until it was handed over, and this was to be covered by the tax payer.  It soon became obvious how a company can build and lease it back to the Government whilst turning over big profits for the duration.

Here are just some of the ridiculous bills for one hospitals maintainance:

  • £466 to replace a lightbulb 
  • £242 for a padlock
  • £75 for an air freshener 
  • £13,704 to install 3 new light fittings in a corridor
  • £8,450 installation of a dishwasher
  • £997 for a TV cabinet 
  • £929 to swap a single socket for a double
  • £676 putting up 4 fire assembly point signs
  • £198 to mend a door handle 
  • £112 putting a whiteboard 

And the list goes on.  By the time the 20 year leasing arrangements are completed the cost to the tax payer will be over £20 billion.  Hardlya good deal for UK Tax Payers when you consider the cost of undertaking the work itself…

The Mamoth IT Blunders……

Alongside the many costly policies the Government is well known for its expensive IT blunders that either, didn’t work at all, worked partially or were simply ‘not fit for purpose’.  The cost overruns and time delays are legendary.

An IT scheme designed to integrate the Department for Transport hyping it’s human resources and financial services, and also save the taxpayer £57 million? If this sounds too be true, it’s because that’s what it turned out to be. Far from saving money, the scheme ended up costing £81 million due to management ineptitude described by the Public Accounts Committee as an exhibition of “stupendous incompetence”.

An IT scheme designed to allocate subsidies to farms was originally forecast to cost £155 million, but the programme has ended up costing more like £215 million. The scheme has delayed payments to farmers and incurred increasing penalties from the European Commission.

According to a Public Accounts Committee report, the three key bodies trusted to deliver the programme could not work together effectively. It found that there was a lack of consistent priorities and changes in leadership, which caused havoc and delay. Its focus on developing a digital front-end was “inappropriate for farmers” due to the frequently poor broadband in rural areas.  

The Scottish Parliament Building has been controversial for a host of things, including its location, architect and design – it’s described by one particularly glorious TripAdvisor review as a “grotesque brutalist mess” – but the reason a public enquiry was made into its construction was because of constant delays and its escalating cost. Initially scheduled to inaugurate in 2001, its doors finally opened three years later with an estimated cost of £414million, much higher than its original estimate of £10-40 million. The inquiry found incompetence in the management of the entire project, including fulfilment of cost and the way major design changes were added.

The cost hasn’t stopped there. Figures have revealed that the building’s average repair bill has reached £141,000 per month, five times the figure during the building’s first year. This means that since 2004, maintenance costs have set taxpayers back by £11 million, which of course is higher than some of the initial estimates for the cost of constructing the building itself.

The Greatest NHS IT Blunder…

Instant access to patients records from anywhere.  It sounds like the Shangrilla of vital information. In September 2013, an NHS patient record system that would have been the world’s largest non-military IT system was abandoned, in what could be the most catastrophic IT failure ever seen by the government. The failed centralised e-record system cost the taxpayer over £10 billion, £3.6 billion more than ministers had anticipated.

From the outset, the project was plagued by delays. The delivery of core systems was stalled due to fears that some software was not fit for purpose. After seven years, only 13 acute trusts out of 169 received the full patient administration systems they were agreed under the National Programme. The new systems also caused chaos for many users; a newly-installed IT system lost Barts NHS Trust thousands of patient records, delaying the treatment of urgent cases, costing millions in additional staff and warranting an internal investigation. The Milton Keynes Foundation Trust wrote a cautionary letter to the times about the inefficacy of their system, and warning others not to use it. 

The Ministry of Defence’s secure military network was built to help British troops operate more effectively around the world. The MoD gave parliament a figure of £2.3 billion, but a report by MPs has shown that they knew that the project would cost at least £5.8 billion. The true figure has since risen to at least £7.1 billion. By 2008, the programme was running at least 18 months late, had provided only 29,000 of a contracted 63,000 terminals, and had supplied none of the contracted Secret capability.

According to the then chairman of the Public Accounts Committee Edward Leigh, there was no suitable pilot carried out for such a multifaceted programme. The condition of the Department’s buildings where the system was to be installed was badly miscalculated due to insufficient research.
These disasters could all have been adverted by better planning and listening to expert advice. 
The cost to the tax payer in relation to these failed IT projects is exceptional.  Every major IT project cost nearly 3 times the original quotes and took 3 times as long as predicted.  Many still don’t work and although we see doctors and nurses with their Tablet computers, the system is deemed so unreliable that notes are transcribe to paper for safe storage……

Carillion – A Company with Almost No Assets…..

Carillion is more of a management consultantcy than a subcontractor.  I’m sure the latest PowerPoint presentation looked great but if the Government had been listening to the Office of Budget Responsibly and Public Accounts Committee things may have been different.  Profit warnings and a gaping hole in the pension pot (remember BHS) should’ve led to a complete end to any further contracts being awarded, however, Carillion continued to pick up more and more contracts.  As I said Carillion is just a huge management consultant rather than a subcontractor.  Its flags wave above thier prestige projects but it owns almost nothing on the site apart from the flag.  Its assets are virtually worthless considering the size of the contracts they have in their portfolio which is made up almost exclusively of Government contracts…

Too big to fail……

Carillion provide school meals, cleaning and maintenance in hospitals, alongside dozens of other services to nursing homes etc.  That is why a solution must be found.  So far the Government’s only solution is to fund this disaster itself, at an estimated cost of £200 billion.  While loyal Carillion workers worry about how their pensions will be paid, the board have chosen to keep their astronomical bonuses and unnecessarily large pay chequers…

The Classification “Too Big to Fail” is Wholly Down to Bad Government Policy…..

Carillion is no different to the financial institutions we had to bailout 10 years ago.  If you put all of your eggs in one basket as they say.  We could’ve simply taken the banks into public hands instead of handing over tens of billions in bailouts.  Even though most people you ask will tell you how bad things have been during the recession, the banks have continued to make money.  It would suggest that it’s the tax payer is responsible for the ‘to big to fail’ payouts whilst the profits made post bailout is still reaching the pockets of the ‘one percenters’.  If the majority of contracts go to one international organisation they become by definition too big to fail, which if distilled to the basics is this; ‘the club’ relies on these unbreakable contracts to make money for both sides.  It’s just that we’re not one of the sides.  As per usual with these badly thought out policies and certain ‘select’ companies benefitting hugely, we have yet to see any politicians or board members loosing their jobs and being stripped of their ill gotten gains…

It Isn’t Over Yet……

Capita is yet another favoured service provider to the DWP and many local councils.   However, they too are balanced on a knife edge.  If/when Capita fails they too will, doubtless, be deemed too big to fail.  And as for BREXIT, I voted in or out; not for ten or more years of a negotiated contract at great cost to the UK economy.  God only knows how many companies will deemed too big to fail during the exit process.

We don’t live in a Democracy.  We live in a Duocracy where we have a choice of Labour and Conservative, and both have a proven track record of making things worse for us and better for a select few.  Isn’t it time for a major rethink?

And Finally……
‘One of the major problems in society today is the Internet, our manufactured way of life and the way in which all politicians lie or give the answer to a question that wasn’t even asked. People add thier name to an online petition which is the least effective way to protest. If we ever want change it will only come from direct action……’

Stephen P. Walker


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