Thread: How bad is #Carillion and why is it so hard to unpick? Having spent the best part of 15 yrs looking at public procurement data, this is my take on the situation. 
1/ At @open_opps we've identified that 208 public bodies had some form of contract with #Carillion in the last 5 years. The total spend with #Carillion in the published spend reports was nearly £1bn in 2016, but this shrank in 2017.
2/ We don't have complete data for 2017, but by our estimates #Carillion's public sector revenues fell by about 25%
3/ According to spend data, MOD is #Carillion's biggest customer, in the last 5 years they've given the company over £2.2bn, and this is just the stuff we know about.
4/ MOD spent £360m in 2016, but around £270m in 2017 (not all data avail), and most customers did the same.
5/ Of 97 public sector customers in 2017, just 23 increased the amount that they spent with #Carillion
6/ Falling customer numbers is also a common thread, from 166 customers in 2012, this fell to 135 in 2016 and 97 in 2017
7/ Upcoming publications may push this number above 105 or maybe even 110, but the customer count was down every year after 2012
8/ Billings held up, despite the falling customer numbers, but with contracts in Glasgow and elsewhere going wrong, it also looks like a slug of contracts came to an end in 2016
9/ With the sudden drop in customers in 2017 and falling revenues from existing customers, it was obviously too much for the business to sustain. The idea that they only had £29m in the bank is just shocking though.
10/ So where does that leave the Government now? I'm going to run through some scenarios that need to be considered, and you'll see how bad it really is.
11/ Each contract, and we estimate that there are 450 of them is going to have to be either brought in-house, or swapped out.
12/ Contracts that go back in house, will have to have staff re-contracted back to the Council or School that let the contract.
13/ When those staff joined Carillion, some of them will have come from the school or Council, their old employment contracts would have been more favourable than the Carillion contract.
14/ As a result, staff moving back, or staff moving to the public sector for the 1st time, will want to negotiate favourable terms in their contracts. Unions will want the same.
15/ So individual public bodies will have to negotiate these new staff arrangements, which will put greater pressure on their finances, they may, to all intents and purposes go bust.
16/ Carillion would have been brought in to run services and will have promised savings. Those savings have evaporated since they went under, so even if they can absorb extra costs, budgets will be trashed.
17/ Government needs to have a policy for what happens if these organisations start to run out of money, will any budget shortfalls be made up?
18/ Will Government offer support and advice on how to handle the insourcing negotiations? It can't afford to get into the weeds, but standing by isn't a good look.
19/ What about the contracts that will go to different firms? TBH things look even bleaker here, as Govt has a very weak negotiating position.
20/ Every supplier who is going to take on any of the failing contracts is going to demand more money. Mainly because they can and there’s not much Govt can do.
21/ Where contracts are going well, rival bidders will just say “your incumbent went bust, we can’t take that risk”, so the base costs for everything will go up.
22/ They will also have to work out what’s going on, and effect a handover from #Carillion, so there will also be costs for firms to manage the extra cost of taking over the contract.
23/ Where contracts are going badly, rival suppliers will say that these contracts are utterly toxic and the only way to deliver them is to reprice and restart.
24/ The Government has no redress here, #Carillion is gone, so they just have to take it on the chin. The best they can hope to do is select the least worst option in a parade of unsavoury options.
25/ Most important of all, Government can’t afford to let another #Carillion happen, so the work has to go to companies with a stellar balance sheet. They get those by being profitable, so Govt is going to have to trade with the most profitable companies.
26/ The most robust companies are going to add a premium for being more reliable than their rivals, so as well as probably being more expensive already, the cost will go up again.
27/ You can probably see a pattern emerging. From the Government’s bunker all they can see is rising costs and shrinking options, but there’s more still to come.
28/ Right now, there will be a cherry picking war going on. Remaining contractors will be trying to lure away the best staff and, if they can, whole teams from #Carillion.
29/ This will give potential suppliers significant leverage in any future negotiations, as they can promise not to derail (no pun intended) the most important projects.
30/ So not only will there be rising costs, complex negotiations and the distinct feeling that the Government is being held to ransom, the Government will have to deal with many of the key staff moving on to other contractors, taking valuable knowledge with them.
31/ Perhaps Govt's best hope is to dangle some cherries, and offer profitable contracts as long as the successful supplier also takes on some of the poisonous contracts.
32/ The problem with this is that Government can’t aggregate these contracts into packages without the agreement of each buyer.
33/ So spare a thought for the officials having to deal with what must feel like a real storm. They have no good options and Ministers hungry for good news. Seriously, if you know any of them, give them a hug.
34/ You can read an excellent article with more details from our @open_opps data here: wired.co.uk/article/reveal…
35/ I'll cover what we can do to prevent this happening again in my next thread.
Credit: at @open_opps we owe a huge debt of gratitude to @opencontracting who's technical work underpins everything we do and who's values we can only aspire to.
