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Is Carillion the end for public private partnerships?

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  • Leadership

About fifteen years ago, when I was Director of the think tank IPPR, I had a meeting at an industry association. The subject was the emerging findings of the Institute’s Commission on Public Private Partnerships. What took place was a symbol of the deeper problems which have surfaced again with the man-made disaster of Carillion.

The IPPR Commission was a very high profile and controversial piece of work; a leak of its findings pushed the launch of Labour’s 2001 Election Manifesto off the front pages. On the one hand, our pragmatic view of partnerships went down badly on the left. Pointing to the role the private sector already played in areas like mental health and social care, and to the failings of some public sector provision, the Commission rejected the idea that there should be major no go areas for private sector provision of publicly funded services. In a sign of what was to come in my relation with the unions, a former deputy general secretary who was on the Commission phoned from his union’s annual conference to say ‘the good news is that I have managed to block the resolution condemning the Commission; the bad news is I haven’t been able to stop the one condemning you’. 

On the other hand, the Commission was critical of the rationale and practice of much past and existing partnership practice, particularly the now largely discredited Private Finance Initiative. It was this critical element that was worrying the association which had invited me to speak.

After hearing me explain our concerns the delegates split into two camps. The first acknowledged the real problems – such as failure to transfer risk and the way some providers had pocketed huge windfall gains – and wanted to explore reform. The second camp instead saw the problem as merely one of communication and argued for commissioning a propaganda video rebutting any critique and featuring lots of shiny new PFI financed buildings. I left before a conclusion was reached but the latter view was definitely in the ascendency.

Since then there has been an accelerating decline in public support for various forms of public private partnership. Carillion could be portrayed – as Jeremy Corbyn clearly hopes - as the final nail in the coffin but to be honest it is just the latest in a long line of hammer blows. These include anger at the many institutions like hospitals and schools still labouring under exorbitant PFI charges. Then there is the high profile failure of certain schemes; most famously the London Underground PPP, a disaster so bad it was one of the case studies chosen by Anthony King (sadly missed) and Ivor Crewe in their grimly entertaining book ‘The Blunders of our Government". Then add in a variety of incompetent IT schemes, poor quality routine contracting out and the failure of attempts to save money by hiving off whole areas of activity to external providers, for example, the probation service. The only question now about public disenchantment is whether it could get any worse.

There are many culprits in this tale. Lazy or ideologically blinkered ministers, incompetent public sector commissioners, cynical private sector providers signing ‘suicide bids’ on the assumption that they can renegotiate when things go wrong and, as always, a financial sector willing to arbitrage any profit regardless of consequences or ethics. But, going back to that meeting let’s not forget the baleful role of industry representatives, who always seem to put self-interest and special pleading ahead of self-reflection and responsibility. 

Yet, the story of public private partnerships is not all bad. We don’t hear about the IT schemes that work or the contracts that are delivered successfully. Public sector providers often make hash of things and monopolies are rarely good for innovation or efficiency. It is inconceivable that the state could try to bring back under state ownership every service that is funded or subsidised by the taxpayer. Furthermore as the pace of technological change increases (AI, robotics, blockchain) the public sector will find it increasingly hard to develop alone the expertise and agility it needs to grasp new opportunities to provide better services.

All in all we urgently need a reset on public private partnerships. But if the private sector is to have any chance of persuading the public it can be trusted with taxpayer money it will need to choose searching self-criticism and a much more developed sense of social responsibility over a PR campaign.   

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  • One of my students is number 3 in the hierarchy of a leading bank in Taipei. She shared with me the banking sector's frustration with certain species of financial instruments similar to those alluded to by Matthew Taylor. A thought occurred to me that perhaps the answer may lie with a "Stakeholder's Equity" as a means of bringing a measure of accountability in these arrangements. The stakeholder's equity would probably be treated in the same way other equities are treated, that is, it would have to be accounted for on the balance sheet. It's just an idea. It may be worth looking into... 

  • Carillion the end of PPP? Mathew Taylor’s Blog seems to say ‘itdepends upon how they are done’; calling for better specification and less ‘suicidebids’ by companies expecting to be bailed out. An underlying issue that affectsboth attempts to contract out and to manage in house is uncertainty as tofuture conditions.  While anticipatedrisks in construction can be taken up by the contractor, at a price, the public-sectorrisk that remains is that a 25year contract drawn up in a time of expandingpublic expenditure can look like a beached whale when a tide of austerity setsin.  New ideas on progressive risksharing might save the concept.

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