Further light has been shed by the National Audit Office (NAO) on the financial and supply relationship management disaster caused by the collapse of Carillion.
The NAO investigation into the government’s handling of the giant contractor’s implosion found that none of the contracting authorities responsible for approving new or additional contracts to Carillion believed that they could disqualify the firm after its first profit warning in July last year. This is because existing procurement rules allowed them to disqualify the firm after its first profit warning in July last year.
Between then and its eventual collapse, Carillion had secured new central government contracts worth in excess of £1.9bn. This included a £1.3bn HS2 contract which was part of a joint venture (JV) which was approved before the first profit warning but signed afterwards.
Two other JV contracts for the Ministry of Defence were signed before the July 2017 profit warning but Network Rail had confirmed the second phase of its £63m line-electrification contract with Carillion after the firm’s second profit warning in November 2017.
The NAO report states: “None of the contracting authorities believed they had grounds for disqualifying the bids under procurement rules.”
Network Rail told the NAO that it would have become incurred additional costs if it had cancelled its contract with Carillion due to delays resulting from re-procuring the electrification work.
The government was heavily criticised by the Public Accounts Committee (PAC) last month for inadequacies in its strategic sourcing, most notably in its risk assessment of major suppliers. It was argued that the government’s traffic light system was described by PAC as “slow and clunky” in relation to Carillion’s deteriorating economic predicament.
The Cabinet Office had agreed not to increase Carillion’s risk rating from red to the most serious “high risk” status following the November profit warning, as the company had argued that doing so could trigger its financial collapse.
Responding to the NAO report, a cabinet spokesperson said that it had worked hard to minimise the effects of the insolvency, safeguarded over 11,700 jobs and would now study the NAO’s findings.
Steve has over 28 years of success as CPO, MD and Procurement BPO leader in a range of industries. Steve is COO at Odesma, responsible for Odesma’s delivery capability & infrastructure.