By Ranjan Balakumaran @FinancialEyes
The liquidation of construction giant Carillion has sparked fierce debate about privatisation, procurement and PFI.
For many, Carillion’s downfall has come as a shock. But for finance experts like Dexter Whitfield, it’s long been clear that we have a disaster on our hands.
In 2011, day surgery centres run by Carillion’s subsidiary Clinicenta were closed in 20 north London boroughs following serious incidents, including a patient death. According to The Bureau of Investigative Journalism, £60m had already been spent paying off private companies for “surgicentre” work which the NHS had decided to bring back in-house, due to high cost and poor performance. Clinicenta’s CEO at the time was Simon Hopkinson, an engineer specialising in facilities management, without experience or expertise in medical matters.
In response, Stevenage MP Stephen MacPartland persuaded Tory colleague Jeremy Hunt to pay Carillion off and give the contract back to the local health authority. MacPartland later said in the House of Commons:
“I am probably the only Tory MP in history who has managed to renationalise a part of the NHS that had been privatised under a Labour Government.”
How did a firm whose expertise was in construction, engineering and facilities management win contracts to deliver knee replacements and cataract operations? A clinical negligence lawyer appears to comment under another report of botched cataract operations here:
“In general, cataract operations have a very low complication rate…The general public will want to be reassured that mistakes are not caused by companies being more focused on profit than healthcare.
“As a clinical negligence lawyer I have seen evidence of corner-cutting from independent health providers… In 2013, the contract with Clinicenta was terminated and the Lister Surgicentre in Stevenage was closed for a similar reason.”
“Private sector efficiency” was the mantra of the 1980s — we were told over and over that it was the cheapest and best way to deliver public services. Efficiencies in service delivery would be achieved via “private sector expertise”.
But the private sector’s focus is maximising profits – indeed a company’s duty is to maximise shareholder value, and legally its loyalty is to shareholders.
So privatisation became a highly efficient money-spinner for the well-connected firms that won the juiciest contracts, and service quality fell. They typically subcontracted work to other firms, taking an unearned slice of public money while focusing on winning yet more lucrative contracts funded from state budgets.
Once this process started, public service values such as civic duty and accountability were replaced by profiteering and indifference to the supposed beneficiaries of public services: people in distress. Safety also increasingly deferred to profit-making, because addressing risks costs money.
Grace Blakeley’s recent Medium piece makes it clear that Carillion’s real expertise was winning juicy contracts thensubcontracting and taking a rake-off from the budget — without actually delivering services.
In 2011 Public Finance magazine described the ill-effects of yet another Carillion money-spinner:
“Take the £256m Queen Alexandra Hospital in Portsmouth. This sparkling new facility was officially opened in October, and is undoubtedly one of the most impressive health care buildings in Europe. But the Portsmouth Hospitals NHS Trust is already struggling to meet the project’s £40m annual revenue cost. Its ability to pay was premised on achieving epic savings targets and big increases in activity, which failed to materialise. As a result, the trust has been forced to take out a £13m loan to pay its bills, while cutting 700 jobs and 100 beds. It is left with a £6m deficit and many more job losses are expected soon.
“Yet the scheme has proved profitable for the investors. Last June, Carillion, a construction group, sold its shares in the project to HSBC Infrastructure Company Ltd for £31m – a healthy return on the £12m it put into the deal in 2006. It will, meanwhile, continue to manage the new PFI facilities under a concession worth about £30m a year.
“Answering a question on the Queen Alexandra deal in Parliament recently, Prime Minister David Cameron called the PFI programme a ‘shambles’ that he had inherited (although he was special adviser to Tory chancellor Norman Lamont in 1992, when the PFI was introduced). Cabinet Secretary Francis Maude described PFI profits as ‘outrageous’ last month. The anti-PFI rhetoric is becoming more strident even as ministers approve huge new projects – the Royal Liverpool Hospital, signed off by Health Secretary Andrew Lansley in June, will be one of the largest PFI hospitals ever procured.”
The Royal Liverpool Hospital is supposedly what bankrupted Carillion.