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Outsourcing Council's can't afford to pay for Carillion

Labour demands help for authorities facing spiralling contract fees

LABOUR is calling on the government to help councils take services back in house as they face ballooning contract fees to bail out failed outsourcing giant Carillion.

A number of local authorities are worried about being “charged substantial increases in contract fees by the Official Receiver,” a Local Government Association (LGA) spokesman said.

And increased costs could escalate further while contracts are re-let or taken in-house. The LGA has advised councils that “a pacy transition to new arrangements” would be the way to minimise risk of rising costs.

Local authorities are rushing to take services back in-house amid fears that “weekly charges” and “contributions to overheads” could climb by up to 70 per cent in some cases, the LGA said.

Shadow secretary for communities and local government Andrew Gwynne slammed the government for not safeguarding council budgets after “eight years of devastating cuts.” He said: “Local government should not be forced to pick up the bill for Carillion’s collapse.

“With the uncertainty caused by this collapse and now the risk posed by struggling [outsourcing firm] Capita, forcing our councils to take on these addition fees feels like a kick in the teeth.

“Labour in government will support our councils to bring our public services back in-house. The government must now do the same.”

Meanwhile a string of Carillion executives were hauled in front of two Commons committees to account for their contribution to the company’s collapse last month.

Carillion was struggling with nearly £900 million of debt and last year reported a £587m pension deficit. It was also forced to issue numerous profit warnings last year after a review of its construction contracts found them to be much less valuable than previously thought.

Subsequent failure to gain investment led to its collapse last month after lenders were “spooked,” according to former boss Keith Cochrane. He admitted he should have acted sooner, while the firm’s finance chief Zafar Khan denied being “asleep at the wheel” and said the liquidation came as a surprise.

When asked why he was sacked as finance director and replaced with Emma Mercer after less than nine months on the job last September, Mr Khan blamed “trading conditions.”

He insisted he “did everything” he could have done while Carillion was drowning in debt and holding significantly underperforming contracts in a “tough” construction market.

“I was surprised at the outcome that eventually came to pass,” he added when questioned by the business and pensions committees.

Also listed as witnesses were former chief executive Richard Howson, chairman Philip Green, former finance director Richard Adam and chair of the remuneration committee Alison Horner.

Executives’ apologies were “just words,” work & pensions committee chair and Labour MP Frank Field said.

MPs detailed bonuses paid to Mr Howson — £293,000 in 2015 and £245,000 in 2016 — and Mr Adam, who received £140,000 in 2016 and £215,000 a year earlier.

Mr Howson said his bonus was justified “for the attributes that I earned it for.”

Mr Field concluded the hearing by saying: “All of you have done rather well out of the company you’ve helped to crash.

“Pensions are taking cuts, large numbers of people aren’t going to get paid, other people have lost their jobs, and you are still all right, all of you, aren’t you?”

 

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