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Carillion proves 'fundamental flaws' in government contracting

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Carillion’s collapse exposed “fundamental flaws” in the government’s approach to contracting, a Commons committee has said.

The government’s main priority was to spend as little money as possible while forcing financial risk on to contractors. It has had to renegotiate more than £120M worth of contracts since the beginning of 2016, a report by the public administration and constitutional affairs committee (PACAC) revealed.

PACAC chairman Sir Bernard Jenkin said: “It is staggering that the government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs.

“It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

“Public trust requires that outsourcing better reflects public service values. The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.”

An internal Cabinet Office inquiry will investigate how government departments rate the quality of bids so that price does not become the deciding factor in awarding contracts, the chief commercial officer Gareth Rhys Williams told the inquiry.

A parallel investigation by the Public Accounts Committee found that the government’s Red-Amber-Green (RAG) strategic supplier assessment scale is “slow and clunky” after the construction giant was only given a red rating after issuing a profit warning in July 2017.

The Cabinet Office recommended that Carillion was given a black “high risk’’ status in November last year but ministers ignored the advice following representations from the company. 

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