Friday, 14 July 2017

More Prison Trouble

Recent prison inspections and IMB reports have often made mention of the poor state of the fabric, insanitary conditions and repairs taking ages to fix. Could this possibly be part of the problem:-   

Press release:-

Carillion signs contracts worth approximately £200 million to provide facilities management services for public sector prisons

Posted 23 January 2015

Further to the announcement on 19 November 2014 that the UK Ministry of Justice had selected Carillion as the preferred bidder for two contracts to provide a range of hard and soft facilities management services to the National Offender Management Service for public sector prisons in two geographical areas, Carillion announces today that it has signed these contracts.

One contract will provide services in prisons in London and the East of England and the second will provide services in prisons in the South West, South Central, Kent and Sussex.

The contracts, which cover approximately 50 prisons, will be for an initial five-year period, but with the potential for two subsequent one-year extensions, subject to satisfactory performance. Mobilisation has begun with service delivery due to commence on 1 June 2015.


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This in the Guardian 13th July 2017 :-

Carillion has 'no future without rights issue of at least £500m'

For many, the morning of 8 July promised a feast of sport: the British Lions Test in New Zealand, a Lord’s Test and Wimbledon. But a small group of bankers were about to have their weekend ruined by a summons to an emergency meeting in London’s Maddox Street.

Board papers had been delivered to the homes of the directors of Carillion, a FTSE 250 business best known as a builder that works on huge construction projects, and the documents contained disturbing news. A review of the group’s finances, commissioned two months earlier from accountants KPMG, had unearthed a gaping hole in the accounts.

Meetings through Saturday and Sunday produced an 800-word statement to the stock exchange, which shocked the City when it was released at 7am on Monday morning. It was a monster profit warning following an £845m writedown, of which £375m related to three large public private partnership (PPP) contracts in the UK and £470m to the cost of pulling out of several markets in the Middle East and Canada.

The announcement continued: chief executive Richard Howson had immediately stepped down, and a new interim boss, Keith Cochrane, had been parachuted in to conduct a “comprehensive review of the business” until a permanent successor was found. Predictably, the shares reacted violently to the news – slumping 39% on Monday – but the bloodbath didn’t stop there.

They were down again by 33% on Tuesday, plus another 27% on Wednesday, and suddenly a business with annual revenues of £5bn and 48,000 employees was worth less than £250m. The shares are now changing hands at just 57p – down from 200p a month ago and 350p two years ago. The City now expects the company will need to raise double that figure just to survive.

Sam Cullen, an analyst at investment bank Jefferies, said: “Realistically, we see no future for Carillion without a rights issue of at least £500m as we believe the group will find it increasingly difficult to win support services work with the balance sheet in its current state”.
What is Carillion – and how did this happen?

The company is an intrinsic part of the UK economy, being one of the major contractors to the Highways Agency and to Network Rail, and is essentially set up around three businesses. Firstly, it is perhaps best known for construction, where it has just completed the expansion of the main stand at Anfield and is working on the conversion of Battersea Power Station.

Secondly, there is a support services arm, which includes maintenance on buildings and cleaning services. And, thirdly, there is PPP, where it might fund and manage the building of a new NHS hospital. PPP is one of those financial inventions that was sold as being a win-win for both sides. The government might get some new infrastructure more quickly and without having to to pay the huge upfront costs of building it, while the private companies financing the deal gained a valuable long-term income stream - often over 20 years or so. At least, that was the theory.

Just three Carillion PPP contracts – thought to be the Midland Metropolitan hospital in Smethwick, Merseyside’s Royal Liverpool hospital and an Aberdeen road project – are behind the bulk of the £375m losses that relate to the UK.

Industry watchers say that project delays – caused by such astonishing occurrences such as cold weather in Aberdeen over the winter – have introduced huge extra costs. Construction of the Royal Liverpool hospital has also been beset with hold-ups, most recently after after workers found “extensive” asbestos on site and cracks in the new building.


Meanwhile, just before the profit warning, it was revealed that another Carillion project – an experimental tram-train linking Sheffield and Rotherham – has cost more than five times the agreed budget and is running almost three years late. The government has been forced to compensate tram operator Stagecoach for the delays with a £2.5m payment.

These types of setback are frequent complaints of investors in the sector and is one of the reasons the City has long taken a dim view of Carillion. For months, the company has been one of the UK stock market’s most shorted companies – meaning that investors have been placing bets on a fall in the company’s share price.

The short-sellers have also been motivated by Carillion’s dependence on support services, which account for about 70% of operating profits and an area where companies regularly embarrass themselves with overly optimistic profit forecasts. All of which means that City analysts are now speculating that the company could run out of cash – with those at Liberum wondering if it might breach a banking “facility”, effectively the company’s overdraft. Carillion also has a pension deficit of £587m to deal with.

The company has outlined a plan to avert all this, including accelerating a plan “to reduce net borrowing” and disposals to raise up to £125m in the next 12 months. By pulling out of construction in Qatar, Saudi Arabia and Egypt, it is withdrawing from its business in the Middle East almost entirely. Further annual savings will be announced following a “strategic and operational review”, while the firm also plans to get better at collecting money that it is owed.

Will that be prove to be enough? Analysts at UBS say the company can potentially be recapitalised, but it is predicting more hefty share price falls in the short term. Its worst case scenario is particularly frightening: the Swiss bank reckons the shares could fall to zero.


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This from the Independent:-

What we should learn from the crisis at Government contractor Carillion

How long can it be before a crisis at a Government contractor turns really nasty, and the National Audit Office’s warning that the big guns have become too big to fail proves prophetic? The week in the City has kicked off with yet another finding itself in the midst of a very big mess. This time it’s Carillion.

Having trumpeted it’s “high quality order book”, reassured that performance was “in line with expectations” and repeated a pledge to reduce debt in March, things have taken a dramatic turn for the worse. The company, that does everything from catering to construction, and employs 47,000 people worldwide, has issued a brutal profit warning and suspended its dividend in a bid to save cash. Chief executive Richard Howson is on his way out and a “comprehensive review” of the business is to be launched (KPMG is already poking around the construction operations).

Amid longstanding investor concerns about its finances, debt continues to rise, despite the actions that the company has taken to stop the rot. They include exiting construction public private partnerships in this country, pulling out of construction in the Middle East, and being ultra careful when it comes to taking on new projects.

It looks awful, and it’s interesting to note that Mr Howson is supposed to be sticking around to help keep the show on the road with his interim replacement Keith Cochrane while the company tries to find someone to get it back on an even keel. The thing is, we’ve seen this sort of thing before, and on repeated occasions. As the mania for outsourcing took hold on the part of Government and in the private sector, a host of companies like Carillon grew and got fat.

They used the vast revenues they earned to expand overseas, taking on more and more diverse streams of work in more and more parts of the world. Jacks of all trade, masters of… well it hardly needs saying. 
Pick a contractor, any contractor, and Google will probably be able to find you a crisis like the one at Carillion. Just last year, Capita’s shares hit a ten year low after the second profit warning in three months. Meanwhile Serco, which appointed Winston Churchill’s grandson to sort out its financial mess, has found itself smack in the middle of an operational foul up. 

Having taken on a big contract at the four hospitals overseen by the Barts NHS Trust (ironically Carillion previously handled part of it), perhaps evidence of renewed official faith in its abilities, it managed to provoke a strike among cleaning staff at the Royal London Hospital after just three days.

Three months on, and 1,000 cleaners, porters, caterers and security staff, at the latter and the other hospitals, are poised to begin industrial action. And so it goes on. And on and on. Badly managed finances, badly managed contracts, unhappy staff, unhappy customers, unhappy workers.

You’d think, given all this, that someone would ask seriously whether it’s really such a good idea to have handed such a wide range of state services to companies that operate in this manner, and that keep falling flat on their faces. Yet, with the notable exception of the NAO, it’s not happening.

Faced with situations like those above, the Government shrugs its shoulders, perhaps because, ultimately, the companies concerned have always just about found a way through their difficulties. It seems we might have to wait for a truly dreadful crisis, one that really hurts people, for this to change. It always seems to be that way in modern Britain.

8 comments:

  1. "How long can it be before a crisis at a Government contractor turns really nasty, and the National Audit Office’s warning that the big guns have become too big to fail proves prophetic?"

    The dreadful crisis has already happened. We're already there. Have been for some years now. A bit like the scandal of unsafe buildings, i.e. the highly unsuitable materials are already fixed in situ, we're just waiting for the spark that sets it all off.

    Just look at the consultancy fees, accountancy fees, audit fees, special this-and-that fees regularly handed out to the big accountants and law firms. Just look at the revolving door from MP and Senior Simple Serpent to super-rich part-time directorship. Just look at the privatised prisons & probation debacles. Just look at any list of Govt contractors:

    G4S; Capita; Deloittes: PwC: Serco...

    Control of the UK was handed on a plate to multinationals many years ago, they've just been ticking over submitting invoices eversince, biding their time waiting for the right Administration which will allow them to achieve maximum profits by capitalising on their UK assets.

    And Brexit is the perfect smokescreen.

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  2. I'm sure Interswerve will be rubbing their grubby little hands together to see what they can make from this.

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  3. Really good article here Jim thank you. According to NAO in their September 2014 report on transforming governments contract management the government had started a large change programme to improve how it manages its contracts following the over billing scandal involving G4s and Serco. This was just at the point of the TR split. This report found 343 out of 584 areas of contract management were assessed as weak, 73 of these were considered to create a material risk of over billing. I recollect the Cabinet Office, HM Treasury, and the Ministry of Justice were initially allowing these companies to bid for Probation. NAO reports they were not going to impose an official ban on letting new contracts to these companies only revise the contracts.
    Out of 60 contracts NAO tested at that time for over billing 47 issues on risk were identified and Government was found to not have sufficient understanding of the level of risk retaining on contracted-out services. (Sounds familiar). None of those in the cross-government review shared risk registers with the contractors to ensure all understood who was managing what. I recollect the TU’s never got to see risk assessments on TR, they were given the run around and told they were commercially sensitive but they had there suspicions they didn’t even exist. 50 issues on contract development with departments paying insufficient attention to the impact of contract change. 31 managing relationship issues. Not all departments have had a strategic approach to managing supplier relationships with a lack of meaningful incentives for innovation that can inhibit shared approaches to problem solving and service improvement. Try and find an MOJ contract manager when you go into dispute with CRC owners, I hear they go underground.
    This report gets better or worse depending how you want to view it. “Poor contract management is a long-standing issue” . Don’t we in Probation know it !!!! NAO states by the middle of the last decade there was a large number of mature contracted-out services across government and work started to highlight widespread problems with contract management. In 2008 they said that no commercial director or head of procurement rated the resources allocated to managing major contracts as ‘good’. They highlighted poor risk management, inadequate performance measurement and limited use of performance incentives. Since then they still report on many contracts with weak contract management with far-reaching consequences, including the need for better scrutiny of payments and understanding of the contract which could have prevented the over billing found in the Ministry of Justice’s contracts.
    The Ministry of Defence’s failure to provide ICT infrastructure critical to the success of the Army’s recruitment contract with Capita impacted on recruitment activities and increased costs. The underlying causes of problems in contract management go beyond poor administration and lapsed awareness says NAO. “The problems are rooted in a civil service culture that does not understand the value of contract management, and which has hindered previous attempts to disseminate and implement best practice. Reform of contract management will therefore need to go beyond a tightening of controls. It is difficult to generalise across 17 government departments, but from our collective experience of auditing government contracting we have identified 4 key causes of poor contract management that need to be addressed although the reality is that government is unlikely to ever have the commercial capability of its contractors”. The 4 key areas are; Government fails to recognise the value of contract management / Senior managers in central government departments have not taken taken contract management seriously / Senior managers have not demanded visibility over their contracts / Government is at a permanent disadvantage on commercial capability.
    Is it any surprise we are in a mess and at how much cost. This government has to be taken to task over these contracts collectively by all the unions.

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    1. General strike anyone?

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  4. Sorry to digress here but just opened my pay slip from Interswerve CGM only to find it printed onto a very thin piece of A4 and folded into the envelope !!!!! and yes I think a General strike should most definitely be on the cards

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  5. Great blog, thanks. There is so much going on in the government where I just think "When is this just going to fall over completely?". Was a time when if you asked a business or institution what it did, the answer would be a statement of a service or product. Now the answer in so many cases is "Doesn't matter what we do, but we do it cheaper" Achieved by producing shit services and products, and treating employees appallingly. Not sustainable, not defensible.

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  6. http://www.bbc.co.uk/news/uk-england-39113391

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