Carillion’s collapse on Monday has called into question both the judgement of the British Conservative government and a model of governance through subcontracting.
The measure of the collapse is hard to overstate. Upon news of the collapse, Theresa May called a so-called COBRA crisis management meeting. The company has accumulated a debt of approximately €1bn and over €600 million pension fund liabilities it could not meet.
Carillion appeared too big to fail.
The company was doing everything the state wouldn’t. From constructing railway lines and roads to running school and hospital kitchens, building officers’ homes, and running prisons. Altogether, the company had 450 contracts with the British government.
Carillion was a direct employer to just under 20,000 people in the UK and 40,000 worldwide. However, in taking on multi-billion contracts, the company was subcontracting a string of suppliers who fear they may be taken down to the bottom along with the behemoth. Some of the bigger partner companies and subcontractors will be moving in to take on some of the work.
But, the transition cannot be seamless. Subcontractors have started firing, and it is unknown when biggest infrastructure projects will resume. Theresa May’s government insists the company will not drain public resources, but the company’s payroll has already passed to the government to ensure that vital social services will not be disrupted.
On Tuesday, the British government announced there would be an investigation into Carillion’s management. But, the government should have known better prepared, critics argue. The Oxford region has for months been taking vital services away from Carillion, in-house, to ensure there would be no cliff-edge situation.
The British government did the exact opposite. Despite profit warnings to its shareholders, the company continued to award the company contracts to the tune of €1,6bn since July 2017. However, the Labour opposition is not merely criticising the government for the failure to predict Carillion’s collapse but opposes the very model of outsourcing services.