Tuesday 16 January 2018

Carillion: too greedy to succeed


On 18 November 2014 the then Coalition Justice Secretary, Chris Grayling MP, made a dry written statement to Parliament on ‘Prison Competition and Efficiency. It was barely noticed, and politics moved on.

He told Parliament “In November 2012 the Government announced the start of a new programme of work to drive down costs across prisons in order to deliver value for money for the taxpayer, accelerate cost reductions, maximise savings and to improve outcomes without compromising public safety. The programme included applying a new public sector staffing benchmark that had been developed by the Prison Service in competition with private sector bidders during prison competition phase 2 and the competition of ancillary and through-the-gate resettlement services in public sector prisons.

This approach allows HM Prison Service to focus on core custodial functions, with private and third sector partners adding their expertise and experience by delivering efficient and innovative ancillary and resettlement services.

In June 2013 we announced a competition for the management of a range of works, maintenance and facilities management services in public sector prisons. The competition was formally launched in January 2014, and included: maintenance; works and building projects; management of prison stores; waste disposal and collection; energy and environmental management; cleaning; and escorting of contractors and their vehicles.”

He then stressed: “I can today announce the outcome of the competition. After a rigorous evaluation of bids, Amey and Carillion have been selected to run the services across four geographical areas. (emphasis added)

These are:

Lot 1. Amey—North East, North West, Yorkshire and Humberside

Lot 2. Amey—East Midlands, West Midlands, Wales

Lot 3. Carillion—East of England, London

Lot 4. Carillion—South West, South Central, Kent and Sussex

He concluded: “We intend to award five year contracts, with expected savings from these contracts in the region of £115 million over that period. This represents an impressive saving for the taxpayer. We expect the new providers to start delivering these services on 1 June 2015, following a period of mobilisation. Robust arrangements will be in place to manage the new contracts.” (Hansard, Column 7WS)

Two years later the Carillion Annual Report 2016 included the following paragraph

Our risk management framework

 

The Group’s policy is to ensure that all risks are identified, evaluated and an appropriate response determined prior to any

commitment being made to any other party.

This policy is supported by clear guidance on process and procedures, risks that are unacceptable to the Group and practical guidance for the management of risk at all levels throughout the business.  (emphasis added)

[…]

The Board continues to be responsible for determining the Group’s risk appetite in pursuit of its strategic objectives and for maintaining a robust system of risk management (including regular reviews of principal risks)

to mitigate any potential impacts associated with these  risks.

(((http://annualreport2016.carillionplc.com/downloads/Carillion_Principal_risks.pdf)


Our principal risks Group’s principal risks are analysed on a gross and net risk basis The occurrence of the above risks could have a significant impact on the ...


Operational risk management – Carillion

Our risk management process

The Group has a long-established process and methodology for the identification, quantification, monitoring and management of the principal


It concluded: “During 2016, the Group has maintained its comprehensive

approach to contract management and there has been no change in the nature of contracts being delivered by the Group.” (emphasis added)

The Annual Report outlined the following glowing future for the conglomerate:

Performance in line with expectations

·         Total revenue growth of 14 per cent, primarily organic

·         Performance led by growth in support services

·         Support services contributed over two thirds of total operating profit and more than offset expected reductions in profit from Public Private Partnership projects and Middle East construction services

·         Underlying operating margin lower as expected at 4.9 per cent (2015: 5.3 per cent)

·         Underlying profit from operations fully cash-backed – cash conversion 117 per cent

·         Net borrowing of £218.9 million at 31 December 2016 (2015: £169.8 million) and average net borrowing for 2016 of £586.5 million (2015: £538.9 million) with the increases mainly reflecting adverse movements in foreign exchange rates



High quality order book and strong pipeline of contract opportunities

·         £4.8 billion of new orders and probable orders in 2016 (2015: £3.7 billion)

·         High-quality order book plus probable orders worth £16.0 billion at 31 December 2016 (2015: £17.4 billion)

·         Revenue visibility for 2017 of 74 per cent (2015: 84 per cent for 2016)

·         Expect over £1.5 billion of revenue from framework agreements not yet included in orders, probable orders or revenue visibility

·         Substantial pipeline of contract opportunities worth £41.6 billion (2015: £41.4 billion)



Proposed full-year dividend increased by one per cent to 18.45p (2015: 18.25p)

Strategic review

Chief Executive’s strategic overview

Building trusted relationships with customers and using all our resources and skills in an integrated way helps us to win high-quality contracts and deliver services safely, sustainably and to best-in-class standards.

Strategy

As one of the UK’s leading support services companies with a substantial portfolio of Public Private Partnership projects, extensive construction capabilities and a sector-leading ability to deliver sustainable solutions, Carillion offers a wide range of services across markets in the UK, Canada and the Middle East.

This wide range of expertise enables the Group to provide bespoke, integrated solutions for buildings and infrastructure, from project finance through design and construction to life-time asset management, together with business support services that add value for our customers and the communities in which we operate.

In several key markets the Group performed well, notably in a number of our support services sectors in each of our geographies, while trading conditions in construction markets in the Middle East and in Canada, continue to be challenging.

In order to continue building a business that delivers sustainable, profitable growth, we have refined our strategy to focus on

  • winning high-quality contracts in our chosen markets
  • delivering contracts safely, sustainably and to best-in-class standards
  • developing and attracting excellent people and capabilities

Priorities for 2017

Our priorities for 2017 are to accelerate the rebalancing of our business into markets and sectors where we can win high-quality contracts and achieve our objectives for margins and cash flows, to manage the positions we have in challenging markets and to begin reducing full-year average net borrowing.

To accelerate the rebalancing of our business, we will become even more selective when choosing the contracts for which we bid and continue adapting to trends in our geographies and markets in order to focus on new and growing opportunities, such as those we expect in our infrastructure markets in the UK and Canada. To reduce full-year average net borrowing we will maintain strong cash generation, with an increased focus on managing working capital, and review the allocation of capital and other resources across the Group, which will also support the rebalancing of the business.

As always, there are risks and uncertainties, details of which are set out on pages 32 to 37, that may affect our ability to deliver these priorities. However, we have a strong and committed management team whose personal objectives and performance related remuneration have been specifically set to support the delivery of the Group’s priorities for 2017.

And here is how a tiny number of opposition MPs attempted to scrutinise Carillion contracts in Parliament in the past year.

 

Asked by Jon Trickett

(Hemsworth)

Asked on: 05 January 2018

Cabinet Office

Carillion

Commons

121316

To ask the Minister for the Cabinet Office, when the position of Crown Representative to Carillion was vacant during the last 12 months.

A

Answered by: Mr David Lidington

Answered on: 10 January 2018

This Government recognises the importance of managing relationships with Strategic Suppliers and their performance on a cross-Government basis, and has developed a range of strategies to do this, including the use of Crown Representatives.

The role of Crown Representative for Carillion was vacant for three months between August and November 2017. During this period, the Crown representative responsibilities were covered by the Government’s Chief Commercial officer and the Cabinet Office Director of Markets and Suppliers

Q

Asked by Jon Trickett

(Hemsworth)

Asked on: 23 November 2017

Cabinet Office

Carillion

Commons

115303

To ask the Minister for the Cabinet Office, what risk was identified during the procurement process that identified Carillion as a service delivery contractor to (a) the operation of public services and (b) value for money of the potential effect of Carillion plc going into administration.

 

A

Answered by: Caroline Nokes

Answered on: 28 November 2017

It is the responsibility of the Contracting Authority to ensure it is compliant with EU procurement legislation during any procurement process. Contracting Authorities will assess the risk of appointing any given supplier, and this will be tailored to the requirements of the specific procurement.

 

 

            

Asked by Jon Trickett

(Hemsworth)

Asked on: 22 November 2017

Cabinet Office

Carillion

Commons

115143

To ask the Minister for the Cabinet Office, whether a Crown Representative has been assigned to Carillion.

A

Answered by: Caroline Nokes

Answered on: 28 November 2017

As Carillion is a strategic supplier to Government, they have been assigned a Crown Representative.

Q

Asked by Imran Hussain

(Bradford East)

Asked on: 10 November 2017

Ministry of Justice

Prisons: Repairs and Maintenance

Commons

112210

To ask the Secretary of State for Justice, whether he has plans to review the prison maintenance contracts with GEOAmey and Carillion.

A

Answered by: Mr Sam Gyimah

Answered on: 23 November 2017

We are currently engaged in a joint review with providers and key stakeholders, to consider what changes in the current FM contract arrangements are required to deliver an improved service to HMPPS. Detailed design solutions are being reviewed by a Steering Group, composed of senior managers from the organisations involved, with a view to implementing changes which should result in a more responsive reactive maintenance provision, as well as improvements to the systems and processes required to manage the contracts effectively.

In the interim we continue to manage and monitor performance closely through the current contractual processes.

 

Carillion:Written question - HL1335



Q

Asked by Lord Stunell

Asked on: 05 September 2017

Department for Transport

Carillion

Lords

HL1335

To ask Her Majesty's Government what discussions they have had with representatives of (1) HS2 Ltd, and (2) Carillion, about the use of discrete project bank accounts in relation to Carillion's HS2 contract, with regards to the protection of SME sub-contractors from late payments.

A

Answered by: Lord Callanan

Answered on: 14 September 2017

I can advise that the Department for Transport has not had any discussions with either HS2 Ltd or Carillion regarding the use of discrete project bank accounts in relation to HS2 contracts.

 

 

Asked by Lord Stunell

Asked on: 05 September 2017

Cabinet Office

Carillion

Lords

HL1334

To ask Her Majesty's Government what assessment they have made of the current financial situation of Carillion; and what consideration they have given to mandating the use of bank accounts in England for public infrastructure projects in order to protect smaller sub-contractors on such projects.

A

Answered by: Lord Young of Cookham

Answered on: 14 September 2017

The Cabinet Office tracks the financial status of all of HMG’s Strategic Suppliers and manages risks accordingly. Carillion plc is a Strategic Supplier to Her Majesty’s Government, publicly listed company and is required to comply with all rules and regulations of the London Stock Exchange. We are expecting the company to be publishing its half-year results on the 29th September.

The Government Construction Strategy, as set out by the Infrastructure and Projects Authority (IPA), does not mandate the use of Project Bank Accounts (PBAs) in England for public infrastructure projects. However, the policy states they are recognised as an effective mechanism for facilitating fair payment to the construction supply chain and that departments have committed to use them unless there are compelling reasons not to do so. The use of PBA’s can be found in the Government Construction Strategy, which can be found here: https://www.gov.uk/government/publications/government-construction-strategy-2016-2020.

Government Construction Strategy (PDF Document, 518.42 KB)

 

 

Asked by David Hanson

(Delyn)

Asked on: 10 July 2017

Ministry of Justice

Prisons: Repairs and Maintenance

Commons

3715

To ask the Secretary of State for Justice, what the cost was of contracts tendered out for prison maintenance by (a) prison and (b) private sector service provider in each year since 2010.

A

Answered by: Mr Sam Gyimah

Answered on: 18 July 2017

It is right that prison repair work is carried out in a timely and effective manner to ensure public protection. We always work to ensure we achieve value for money for the taxpayer and keep our costs under review.

The most recent applicable data available for the period requested is from 2012, when Mitie Care and Custody Ltd took over the provision of facilities management (FM) at HMP Brixton, later expanding to cover three sites. Until June 2015, FM services at the rest of the public-sector prison estate was delivered in-house by Her Majesty’s Prison and Probation Service (HMPPS). Since then, it has been delivered by Amey Community Ltd and Carillion Plc.

Below is a breakdown of the applicable tendered fixed costs for each of the three private sector service providers broken down by year as requested. These contracts were tendered on a ‘lot’ basis and as such costs are not broken down by establishment. The number of establishments/sites within each package has been included below for completeness:

Custodial Facilities Management: Tendered Fixed Costs (Excludes Indexation and variable works)
Year
2012
2013
2014
2015
2016
2017
Total
Mitie Care and Custody
Lot C: Various: 3 Sites
£2,189,000
£2,810,000
£2,843,000
£3,055,000
£3,500,000
£3,529,000
£10,084,000
Amey Community Limited
From June 2015
Lot E: North East, North West, Yorkshire Humberside: 34 Sites
N/A
N/A
N/A
£11,780,000
£23,560,000
£23,560,000
£58,900,000
Lot F: East Midlands, West Midlands and Wales: 27 Sites
N/A
N/A
N/A
£9,340,000
£18,680,000
£18,680,000
£46,700,000
Carillion PLC
From June 2015
Lot G: South West, South Central, Kent & Sussex: 32 Sites
N/A
N/A
N/A
£9,880,000
£19,760,000
£19,760,000
£49,400,000
Lot H: Greater London and East of England: 22 Sites
N/A
N/A
N/A
£10,020,000
£20,040,000
£20,040,000
£50,100,000
Totals:
£2,189,000
£2,810,000
£2,843,000
£44,075,000
£85,540,000
£85,569,000
£215,184,000

 

Asked by Jo Stevens

(Cardiff Central)

[N]


Named Day

'Named day' questions only occur in the House of Commons. The MP tabling the question specifies the date on which they should receive an answer. MPs may not table more than five named day questions on a single day.

Asked on: 22 February 2017

Ministry of Justice

Carillion

Commons

65009

To ask the Secretary of State for Justice, whether her Department carried out an impact assessment in the effect outsourcing repairs and maintenance in prisons to Carillion would have on the amount of work available to prisoners.

A

Answered by: Mr Sam Gyimah

Answered on: 27 February 2017

Owing to the variability of work available to prisoners across over 100 individual prison establishments, it was not possible to undertake an impact assessment on the effect on the amount of work available to prisoners prior to the contracts being implemented.

However, we have ensured that the contract with Carillion requires them to maximise the use of prisoner labour, subject to local security strategies agreed with the Governors for individual establishments. The specification for Prisoner Labour and Prison Industries in the contract requires Carillion to utilise as much prisoner labour in the delivery of services as was used prior to the contract coming into force.

Under the maintenance contract Carillion are told how many prisoners are available for work on a daily basis and are required to provide the necessary support and supervision resource to oversee the work of the prisoners.


(Berwick-upon-Tweed)

[N]

Asked on: 07 December 2016

Ministry of Defence

CarillionAmey

Commons

56549

To ask the Secretary of State for Defence, whether the Defence Infrastructure Organisation (DIO) has reimbursed CarillionAmey for the purchase of 3,000 boilers approved by DIO to ensure winter boiler breakdown requirements are met in accordance with key performance indicators; and if he will make a statement.

A

Answered by: Mark Lancaster

Answered on: 12 December 2016

The Defence Infrastructure Organisation (DIO) has not reimbursed CarillionAmey for the purchase of any boilers. The replacement of 3,000 boilers has been directly funded by DIO under a capital works life cycle replacement programme and are scheduled for replacement in Service Family Accommodation (SFA) by March 2017. Approximately 1,000 boilers have already been replaced under this programme.

This is in addition to approximately 1,000 boilers being replaced by CarillionAmey as part of the National Housing Prime contract. Boiler replacement is a core service under this contract and thus will be paid for under the normal contractual arrangements.

By the end of Financial Year 2016-2017 approximately 5,585 SFA boilers will have been replaced in total under the above works.

In line with previous years, DIO is monitoring closely the heating situation within SFA during the winter months to ensure any potential problems are identified and resolved quickly.

 

*The Cabinet Office's top brass officials gave oral evidence  to the Public Administration and Constitutional Affairs Select Committee on 15 January  2018 , and were grilled on Carillion contract mismanagement. It was like a scene from Alice in Wonderland!

Witnesses: Sir Jeremy Heywood, Cabinet Secretary, John Manzoni, Permanent Secretary, and Rupert McNeil, Chief People Officer, Cabinet Office

You can start from the beginning  at:


And here are two construction sector business press articles on Carillion, which were not being watched properly by decision makers.

Tenders open for £12bn government FM framework

Construction  News, 9 January, 2018

The Crown Commercial Service (CCS) is inviting tenders for its new £12bn facilities management framework.

The deal will replace the previous £4.1bn FM framework that was set up in 2015 and is due to expire in July 2019.

It will run from May 2018 to May 2020, with an option for it to be extended up to 2022.

CCS expects government departments, including the Ministry of Defence, the NHS and central and local government, to procure as much as £12bn of work through the framework, with individual contracts worth as much as £1.2bn.

The deadline for tenders is 12 February and a spokesperson for the CCS said it plans to announce the successful bidders in May, when the framework becomes operational.

Unlike its predecessor, the new framework is open to joint ventures and consortiums.

CCS said it has had a number of enquiries from companies interested in delivering services through such arrangements.

However, the client added that any JV or consortium will need to have a lead partner or be a new legal entity if it is to deal with the CCS.

The previous framework featured a number of major construction companies.

Carillion secured places on all three lots, while Amey, Bouygues, Galliford Try, Interserve, Kier and Mitie also won places.

The new deal covers hard FM, encompassing building and infrastructure works, as well as soft FM, comprising services for personnel and organisations.

 

 

Carillion named on £4.1bn government services framework


Construction News, 10 August 2015

Carillion has been selected for all three lots on a new government services framework worth up to £4.1bn over the next four years.

Carillion was selected alongside Emcor UK and Sodexo for all three lots of the new facilities management service agreement, designed to save the government more than £200m up to July 2019.

In total, 16 other suppliers secured one or more lots on the new framework, which includes total facilities management, hard facilities management such as mechanical and electrical maintenance, and soft facilities management such as cleaning and security.

It is hoped that the new framework, through which the government expects to spend between £1.3bn and £4.1bn, will create a more efficient and simplified system for public sector customers accessing facilities management.




They do not have the management to run the MOD estate, how will they manage this one?

 

No comments:

Post a Comment