The FT has just reported:
Interserve, one of the biggest suppliers of government services, has confirmed that it has reached an outline agreement that hands banks control of the business in a debt-for-equity swap.
Interserve, which employs 75,000 people worldwide, including 45,000 in the UK, said on Wednesday lenders had agreed in principle to a deal that will see shareholders effectively wiped out and left with just 2.75 per cent of the company. Lenders would convert £480m of existing debt to equity to reduce net debt to around £275m under an agreement that will see them write off more than half of the existing borrowings.
So, another outsourcing company has failed.
So shall we just agree that outsourcing does not work any more?
And that as a result the whole model of outsourcing to the private sector has failed with it?
There is a way to supply public services. And that is to deliver them from the public sector.
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Is the case of Scottish Water an interesting counterpoint to this? I am not sure of the ins-and-outs, just the broad publicised version, where Scottish Water looked like it was being collected together to be privatised then brought back under public oversight – in general the scrutiny gives us a better service & they seem to engage in a fair amount of innovation and development. They are starting to put up supply kiosks in the street, to encourage people to re-use water bottles (I’ve still to see one with my own eyes though). Infrastructure is fairly old, but repairs generally leave the surrounding area improved afterwards.
Labour run councils brought us PFI, the worst most costly con to the public purse. Is that an example of outsourcing?
The water bottle filling bank makes total sense…
Why it is not a business already beats me
I know, a simple idea, supply tap water for bottle-filling when you are out and about – helps the environment, makes life cheaper for us plebs that wander the streets, will likely reduce littering (you are going to re-use the bottle after all), helps to shift attitudes away from the throwaway mindset etc etc.
But it takes incentive – and a ‘free’ supply requires public funding (we all pay for our water through council tax, but only have access to it at home in the main) and some joined-up thinking, regulation, policies etc etc. If you are under public scrutiny and told to take measures to make your business cleaner and greener – this will add to your halo-portfolio. But the drive from government needs to be there.
Private business, in general, does not have our best interests at heart.
We need to get rid of disposable plastic bottles like we did with disposable carrier bags.
Too many people just drop them wherever they are as soon as they’re empty. Do they think they vaporise ?
Often they aren’t even empty.
The obvious thing to do is charge deposits
@spose that’ll be the fault of the EU aswell…..
Or maybe the SNP…(?)…. couldn’t possibly be the UK government’s fault.
Outsourcing has failed as has outsourcing the outsourcing, and, indeed, outsourcing the outsourced outsourcing.
Has anyone told Suffolk County Council yet?
Richard
I agree with you completely that outsourcing should be ended and that public services should be provided by the public sector, for all sorts of reasons.
However the fact that Interserve has had to be bailed out, following Carillion (of which I was a pensioner through their purchase of other companies which they then systematically destroyed)
was not because of the outsourcing contracts that either company had.
Both companies were major contractors first and foremost with outsourcing added as an extra income stream
In Interserve’s case their losses were almost entirely caused by an energy from waste construction contract (rubbish incinerators) in Scotland that they totally failed to manage, understand the contractual risks involved and subsequently lost £400 million. The public sector has never carried out this sort of large infrastructure project in the past.
Carillion’s demise was caused by over £1 billion in losses on two hospital construction contracts in Liverpool and the West Midlands, the Aberdeen Western By Pass and £200 million on work in the Middle East. In fact all their outsourcing contracts were very quickly sold on to other parties by the Liquidator, which indicated that they were profitable!
Point taken
But note, what you describe were outsourced contracts, just of a different scale
@Colonial69
The argument in favour of outsourcing and privatisation is that the private sector is good at this sort of thing and that by being more efficient it is the cheaper way to provide public infrastructure services. If that case is not made there is no justification for outsourcing.
Infrastructure, be it physical or social infrastructure is an overhead to society. This is stuff and services we need; allowing private sector profit to be creamed from it means it has to offer considerably more efficiency and the evidence seems to suggest that it isn’t. Nor is the competence apparently.
Even if (or when ) it works well what we are doing in a covert way is using public funds to subsidise corporate senior management remuneration and shareholder profits at the expense of often casualised labour on minimal terms of employment. When it goes wrong the corporation and its management which have been (sometimes obscenely) rewarded for the risk and responsibility simply shrug it off and throw it back to government to pick up the tab.
There is a disconnect between the needs of the society for infrastructure provision and the corporation for profit.
We get second rate infrastructure and pay over the odds for it. It’s not clever, except as a government benefit payment system for the already wealthy. Which, of course, was always the intention. It was powered by the lie that the government has no money and cannot afford…..
I spent a career negotiating multi-million pound contracts with private and public bodies around the world, working for multinational companies who operated simultaneously in the design, development, manufacture and support sectors. Because of the range of activities that these companies undertook, they carried significant overheads ranging fromland and buildings to plant and equipment to design and development costs. They would try to recover a portion of these overheads on each contract they bid for.
The companies I worked for often tried to bid for outsourcing contracts from the public sector and from privatised organisations that had previously been in the public sector. They invariably failed to win these contracts because specialist outsourcing companies they were bidding against were unencumbered by these overheads. The outsourcing companies invariably employed little or no capital. Most assets necessary to provide the service, such as land, buildings and equipment, were provided by the client and anything else was invariably leased.
When I looked at the accounts of these companies, they were making a huge return on capital employed because they employed virtually no capital. They had significant cash flow and profits but had nothing to fall back on if something went wrong with any of their contracts. Any profits they made were largely paid out in bonuses, dividends etc. It therefore comes as no surprise to me that outsourcing companies are failing. Public procurement officials should have realised the huge risks they were taking by contracting with organisations that had little or no net worth.
One of the driving forces behind outsourcing was to offload pensions liabilities but that tactic, arguably, failed too. When staff were TU(PE)’d to the outsourcing provider, that company would demand and receive indemnities against legacy pensions liabilities. When a replacement contract was tendered many years later, that indemnity would pass to the new service provider. AFAIK, these pension obligations were removed from the public sector pension liabilities but was this the correct accounting treatment? I think not because the liability returned to the public sector as soon as the contract ended. If we look at the hundreds of thousands of people who TU(PE)’d under public sector outsourcing contracts, the size of the accounting mistreatment, if that’s what it is, is immense.
I spent a career negotiating multi-million pound contracts with private and public bodies around the world, working for multinational companies who operated simultaneously in the design, development, manufacture and support sectors. Because of the range of activities that these companies undertook, they carried significant overheads ranging fromland and buildings to plant and equipment to design and development costs. They would try to recover a portion of these overheads on each contract they bid for.
The companies I worked for often tried to bid for outsourcing contracts from the public sector and from privatised organisations that had previously been in the public sector. They invariably failed to win these contracts because specialist outsourcing companies they were bidding against were unencumbered by these overheads. The outsourcing companies invariably employed little or no capital. Most assets necessary to provide the service, such as land, buildings and equipment, were provided by the client and anything else was invariably leased.
When I looked at the accounts of these companies, they were making a huge return on capital employed because they employed virtually no capital. They had significant cash flow and profits but had nothing to fall back on if something went wrong with any of their contracts. Any profits they made were largely paid out in bonuses, dividends etc. It therefore comes as no surprise to me that outsourcing companies are failing. Public procurement officials should have realised the huge risks they were taking by contracting with organisations that had little or no net worth.
One of the driving forces behind outsourcing was to offload pensions liabilities but that tactic, arguably, failed too. When staff were TU(PE)’d to the outsourcing provider, that company would demand and receive indemnities against legacy pensions liabilities. When a replacement contract was tendered many years later, that indemnity would pass to the new service provider. AFAIK, these pension obligations were removed from the public sector pension liabilities but was this the correct accounting treatment? I think not because the liability returned to the public sector as soon as the contract ended. If we look at the hundreds of thousands of people who TU(PE)’d under public sector outsourcing contracts, the size of the accounting mistreatment, if that’s what it is, is immense.Â