Interserve given 'public contracts worth £660m in run-up to collapse'

Interserve, the troubled government contractor which collapsed last week, was handed £660m worth of public contracts in the run-up to going into administration, in an apparent repeat of the Carillion fiasco, the GMB union has claimed.

Last Friday, the company which employs 45,000 staff in the UK working on £2bn worth of government contracts, was put into administration after negotiations over a rescue deal with shareholders failed.

Under a “pre-pack” insolvency arrangement, administrators EY were installed and the assets moved immediately to a group controlled by Interserve’s lenders, which will carry on the same work.

But as the “new” company starts its first week, the GMB has cited figures from Tussell, a data provider, that show Interserve was handed public contracts worth hundreds of millions of pounds in the run-up to its collapse, despite announcing a series of profit warnings.

The union said the biggest contract awarded Interserve last year was a £66m deal in July with the Foreign and Commonwealth Office to run facilities management services.

In December, with debts approaching £700m, Interserve announced a debt-for-equity rescue deal but was still awarded a further £6m in public contracts, mirroring what happened in the run-up to the collapse of fellow contractor Carillion, the GMB claimed.

Carillion’s failure in 2018 cost the taxpayer an estimated £150m. More than 1,700 workers were made redundant, and resulted in major delays to two multimillion pound hospital construction projects in Liverpool and Birmingham. The firm had been awarded £1.3bn of government contracts despite being known to be in financial difficulty.

Interserve failed after its largest shareholder, the US hedge fund Coltrane, opposed restructuring plans. The banks are thought to have written off as much as £800m as a result of the deal. About 16,000 small shareholders are thought to have lost their money.

The company made two-thirds of its £2.9bn revenues from thousands of government contracts, which include hospital cleaning, school meals, the maintenance of some oversees military bases and running parts of the probation service.

Reports over the weekend claimed that ministers were so concerned in 2018 by Interserve’s possible failure that they drew up secret plans to nationalise the operation in an effort to keep hospitals clean and other vital services operating.

The Mail on Sunday reported that it had seen an internal Whitehall strategy memo that showed civil servants had put together a proposal to create a state-controlled company if Interserve went into liquidation and that government was to prepared to move staff.

In that eventuality, the move would have been the biggest government intervention since the Treasury was forced to bail out the banks at the height of the financial crisis in 2008.

Rehana Azam, the national secretary of the GMB, said the Interservse case showed how “obsessed” with outsourcing the government had become.

“Awarding hundreds of millions in taxpayer funded contracts to troubled outsourcing companies is the height irresponsibility,” she said. “Interserve was clearly in trouble, and yet ministers saw fit to hand it hundreds of millions of pounds of public money. What on earth were they thinking?

“Ministers have still not taken on board the lessons from the collapse of Carillion. The outsourcing sector is descending into chaos as companies underbid each other for contracts in a race to the bottom which will see a serious decline in public services.”

A Cabinet Office spokesperson said: “Our priority is to deliver quality public services while ensuring value for money for taxpayers. The awarding of contracts follows a robust process, including financial checks, and we are reforming our approach to outsourcing, so that services are set up to succeed. The refinancing process that Interserve executed led to the smooth continuation of public services and safeguarded thousands of jobs.”

The GMB has launched its Go Public campaign, which calls for an end to outsourcing and privatisation in UK public services and for a better deal to the taxpayer.

In recent years various bodies have queued up to criticise the government’s use of outsourcing firms.

Last July, a public accounts committee report described the NHS’s outsourcing to Capita as “a shambles”. In December, the National Audit Office found that the £495m contract to provide recruitment for the British army had been beset with problems. Most recently the probation service has been described as in crisis since its was partly outsourced.

The Guardian