Carillion Bad Management v Government Bad Tender Process

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Winning Tenders welcomes a tightening of the tender process after Carillion demonstrates how bad management will always try and push too far.

It is possible that Carillion were trying the traditional construction tender process on service contracts and that led to their downfall. Traditionally, in construction, low bids may be put in on the basis that there are always extras needed… extra cement needed here, a new wall there… all leading to extra money being spent at full price, which results in a healthier profit margin.

Working a school dinner contract or prison contract, doesn’t come with the same margin of error and so if this physiology has been used and no extra work found, then losses could easily be accrued.

We’re not saying this is what has happened but it feels logical… time will tell us the true story.

Whatever has happened, the government should not have awarded contracts to a firm they knew were having financial problems.

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The Public Contracts Regulations 2015 (section 58 – 3), state ‘Contracting authorities … ensure that a candidate or tenderer has the legal and financial capacities and the technical and professional abilities to perform the contract to be awarded.’

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Defending the Government’s decision to keep handing contracts to Carillion even after its profit warning transport secretary Chris Grayling made an alarming statement on television, stating that while it had “been clear for some time that Carillion had issues, many construction firms have had issues over the years”, adding “It’s not for Government… to exclude firms, possibly pushing them under, because of the impact on their business, arguably illegal to do so, because there’s no legal reason to exclude them.”

The implication is that the Government had to keep awarding these contracts to Carillion to stop it going bust!

Section 60 – 6 of the Regulations covers ‘Proving economic and financial standing’: this would include reviewing Carillion’s account for the past 3 years and asking for further information if the company’s standing is still unclear.

The spotlight then shifts to KPMG, Carillion’s auditors, who certified that Carillion was on a sound financial footing in its 2016 annual report published on 1st March 2017. The Financial Reporting Council is now preparing to comb the wreckage of Carillion for audit failings and KPMG, under mounting pressure to account for its role in its client’s collapse, expects to be fully investigated (according to Melanie Richards, KPMG’s UK deputy chair, talking to Business Insider in Davos).

30,000 companies could be in very serious trouble as a direct result. Many will see this as negligence on the part of Carillion’s senior management and we look forward to seeing their behaviour being seriously questioned and appropriate action taken.

We also look forward to an even more level playing field in the world of public procurement, ensuring those that are best prepared to present themselves well during the tender process are awarded the contracts on the basis of fair play, quality and financial stability (meaning they must be able to make a reasonable profit) and that nepotism is thrown into the long grass.

Thank you.

Ian

2 thoughts on “Carillion Bad Management v Government Bad Tender Process”

  1. You summarise the situation admirably and maybe the lesson arising is never to create an organisation that is engaged in so many diverse and unrelated activities that it does become unmanageable and beyond salvation.

  2. I have great idea for carrilion in uk. Why don’t they build Walt Disney theme park in uk. At the moment we have to travel to France or Florida.

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