‘A disaster with consequences for years to come’

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  1. The Carillion business model shows the importance of selecting the right individual with experience and knowledge when appointed to “this type of company” for the comfort of shareholders and stakeholders.
    The attitude, arrogance and contractual nature of “builder based” companies does not transfer well into “service driven/FM business” models it seems.
    Obviously in this case Carillion slipped up to say the least and reasons why will emerge. However it simply isn’t good enough to rely on “accounting methods” to monitor contractors’ performance. The connection between shareholders and stakeholders and the directors of a business is very important. Perhaps (not perhaps it definitely needs) the industry needs an “Ofsted type” agency that can examine the way Construction companies operate and perform at all levels. Or is this something the company should do using a quality management system?
    Steve Townsend (Business Consultant) at Townsend Associates

  2. I was disappointed with the extent of negativity towards the outsourcing sector in the wake of the Carillion failure. Lord Adonis affirmed that there have been very many successful large contracts undertaken for government departments and this is a major sector of our industry. It is usually the case, that large contracts of this nature offer significant savings, principally in the efficiencies of the back office operation and the removal of duplication; often the result of IT investment to a level that is only possible in such large contracts.

    Clearly, however, there are lessons to be learnt from Carillion’s demise. When letting large public contracts, there are checks and balances, not least of which are government guidelines about the inclusion of SMEs in the supply chain, and a requirement for contractors to pay their supply chain in 30 days.

    As a self-employed consultant, I understand the dilemma of turning work away simply for harsh payment terms, but a supply chain member has to understand the potential implications of leaving one third of their annual turnover with a customer at risk (as is the case if payment terms are 120 days).

    Equally, as this information is routinely available when undertaking a credit check, the question has to be asked of the government departments’ contract managers as to why they did not take action when the contract requirement (standard in government contracts) of 30 day payment was not being upheld.

    A project bank account is one of the most effective ways of preventing such abuse of the supply chain, and it is worrying to hear from one of my sources that the Carillion / Amey joint venture MoD contracts have been allowed to shelve the project bank account – a fundamental protection of the supply chain appears to have been removed by stealth.

    This does not mean that all large contracts are bad, but it does reveal once again that government departments are sometimes lacking in the commercial skills to manage these contracts in a way that can achieve the most successful outcome.

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