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Cable. Cameron. Clegg. Carillion

Zak Garner-Purkis

Parliament TV rarely provides genuine entertainment, but there was a notable exception during a debate on Carillion earlier this year.

Cabinet Office secretary Oliver Dowden was accusing Labour MPs of hypocrisy for criticising the outsourcing of public sector contracts to the collapsed contractor, given that a third of these deals were done by Labour governments.

He then turned on Lib Dem leader and former business secretary Sir Vince Cable. With perfect comic timing, the camera cut to Sir Vince as he sank into the Commons bench with a pained smile, his cheeks turning a deep purple amid the jeers of Conservative MPs.

His embarrassment was understandable.

A third of Carillion’s public sector contracts were signed under the coalition he served as business secretary, some of which would go on to play significant roles in the contractor’s demise.

The Cameron-Clegg coalition rolled into Downing Street in May 2010, with promises to rein in government spending framed in wartime rhetoric amid the global recession.

This could not have come at a worse time for a construction industry reeling from the downturn, with cashflow from pre-crash projects drying up as they neared completion.

As new work in the housing, commercial and retail sectors grew scarce, many contractors went looking for public sector jobs.

But with the coalition in charge, the public sector played hardball.

A case in point was the immediate cancellation of the £55bn Building Schools for the Future programme.

And it wasn’t just new work on which the government took a hard line. The introduction of ‘competitive dialogue’ created a bidding process where the public sector client could chip away at all angles of a bid, reducing the price as much as possible. It also made for lengthy and expensive procurements.

As a result, contractors often ended up winning contracts that were likely to be loss-making, with some persevering simply because they had invested so much in the procurement and thought they could recoup some during the project.

Then there was Carillion, who we now know was feeding its monster debt pile with some problem contracts for major public projects.

Carillion took on extra risk by signing up to long-term service contracts – the 30-year design, build and maintain deal on Royal Liverpool Hospital being a case in point.

These contracts were often done through PFIs that placed most of the risk on the contractor and gave the government very little control were things to go wrong, which they did.

Another way UK contractors tried to boost their balance sheets during this period was through overseas work.

The coalition loved this idea and used UK Export Finance to guarantee loans for projects in the UAE, Qatar and Oman on the basis they hired a UK contractor.

Who was first in line for those jobs? You guessed it: Carillion. And we all know how their Middle East exploits turned out.

The coalition also masterminded the early payment facility – the measure designed to pass a tier one’s ‘good’ credit rating down the supply chain.

Yet Carillion simply used this system to shore up its own coffers.

Undoubtedly, Carillion’s management was chiefly responsible for the contractor’s collapse.

Certain reckless practices within the construction industry were also instrumental.

But the significant role the coalition government played in its downfall should not be overlooked.

If Carillion was a PFI junkie injecting one bad contract after another into its balance sheet, then the coalition was the smiling pusher that had fled the scene by the time it took one hit too many.

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