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Interserve and Kier beware: The knives are out

Zak Garner-Purkis

Any construction firm with an outsourcing arm better watch their back: the big outsourcers are out to get you.

Earlier this week the CEOs of Mitie and Serco attended a select committee to tell MPs repeatedly how all of Carillion’s problems stemmed from its construction arm.

While there may be plenty of truth in that, the two bosses went further when they were asked what lessons could be learned from Carillion’s collapse.

Mitie boss Phil Bentley was particularly blunt in his suggestion: “Don’t contract with companies that have huge construction risk if you are outsourcing,” he replied, sliding back into his seat with a smile.

Business etiquette normally dictates that CEOs don’t comment on a rival’s performance in detail, let alone dictate to potential customers which of their competitors to avoid.

But etiquette is clearly out the window.

If the government took Mr Bentley’s advice and stopped handing outsourcing work to companies with substantial interests in traditional construction, this would either see contracts dry up for major UK contractors like Interserve and Kier, or force them to choose whether to pursue construction or facilities management contracts.

In a hypothetical scenario where Interserve, Kier and Mitie were competing for a government contract, Mitie would therefore win by default on the basis that it doesn’t have a large construction arm.

But is Mitie the company MPs should be looking to for advice? 

It announced a £43m operating loss in the year to 31 March 2017 and a further £50m writedown a month later.

Would Mr Bentley prefer public sector clients to think about his competitors’ construction exposure, rather than Mitie being on its third CFO in 15 months, or that the Financial Reporting Council is looking into the reporting of its 2016 year-end financial statement?

The select committee also heard evidence from Rupert Soames, chief executive of outsourcing firm Serco.

He thinks the government should consider whether a firm has a construction arm before handing it work, arguing that “when a builder goes bust” you just hire another one, but if a school-dinner supplier goes bust “you’re in trouble”.

Does Mr Soames think that bringing in a new contractor on a major project is as easy as replacing the bloke doing your patio? You only have to look at the Royal Liverpool and Midland Metropolitan hospitals to see that this is not the case.

Construction firms should take note, as the comments from these two CEOs show competitors are keen to use the Carillion debacle to fight dirty, seeking a competitive advantage over any rival they can compare to the fallen giant. 

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