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Carillion's HS2 deal: Cable says Grayling must face committee

Transport secretary Chris Grayling needs to answer questions about Carillion’s appointment to HS2 in front of a select committee, Sir Vince Cable has said.

Asked whether Mr Grayling should face a select committee hearing about the decision to award a £1.4bn contract to the Carillion / Eiffage / Kier consortium on HS2, the Liberal Democrat leader told Construction News: “I’m sure he will, and I hope he’s got good answers.”

Sir Vince added: “I think the select committees – Treasury, transport – are having a look at that and asking detailed questions.

“The assurances we were given in parliament were that the HS2 contract had joint venture guarantees, so that the other companies could step in and take over Carillion’s share of the contract without any harm being done.

“But clearly the transport secretary needs to be challenged as to how that occurred.”

Last week, Labour MP John Trickett attacked the government for refusing to publish its financial risk assessment of Carillion over the award of HS2 phase one contracts.

Two problem PFI hospital jobs in Liverpool and Birmingham that contributed to Carillion’s collapse have also raised further questions about the funding model.

Sir Vince said PFI should not be written off as there were “good and bad PFI jobs”, but he wants the government to do more capital investment and “borrow on its own balance sheets”.

Asked whether hospital PFI schemes should be abandoned in favour of the government funding future projects, the Lib Dem leader said: “Yes. You need a rigorous system for judging government borrowing, but I would certainly have government financing capital projects directly.

“Not always – it’s not an ideological point – but I think that is what has to happen, with both central government and local government.”

Sir Vince told the CN Summit last November that the government was “feeding” Carillion contracts to “keep them going”.

Speaking to CN this week, the former business secretary said that while “there were an awful lot of contracts that with hindsight were very risky, given Carillion’s position” the government had been limited in what it could do.

“The government had a genuine dilemma, because if they’d pulled the plug on the company earlier it would have dragged it down earlier,” he said.

“They gambled that [Carillion] would get through it, but clearly it did not.”

Low-margin government contracts have been cited as adding pressure to Carillion and other firms, especially in the facilities management sector.

Asked whether the government focused on getting the lowest contract price possible during his time as business secretary, Sir Vince said “that was a factor” in government procurement.

He added: “The financial pressures on government departments were absolutely enormous.”

He said that “quality” should be a key factor in procurement decisions alongside with price, but that he had “sympathy” for public bodies’ efforts to balance the two.

Sir Vince argued departments would be “attacked” for awarding jobs to companies operating on high margins but labelled “imprudent” for handing deals to those with low margins.

“You can’t win with some of these things,” he said.

“But you don’t blame councils – they’re trying to survive and save money in very desperate situations.

“I think the government is going to have to slacken the reins a bit on public finances because severe cuts are being counter-productive.”

One way of improving government procurement would be improvements to personnel, the Lib Dem leader suggested.

“What [Carillion’s collapse] did highlight is the need for more sophisticated, better trained government officials when it comes to tendering,” he said.

Asked what lessons from Carillion’s demise could be used to help Interserve, Sir Vince said he was not familiar with the company but that further administrations among major contractors would be “catastrophic”.

Readers' comments (2)

  • Typical Cable, wise after the event. Asked about Interserve, one of the biggest public sector providers and he is "not familiar with that company". I have no doubt had your reporter asked him 12-15 months ago about Carillion he would have come up with the same weasel answer. Now he is the wise old font of all knowledge!!!
    Too many on these committees, particularly from the left just [playing politics, it is really of no use to the country, to construction or the public sector clients.

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  • Many comments have been written about contractors attitudes to risk bidding. I think it is time that clients are questioned about the tender procedures that engender these behaviors.

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