SOURCES OF THE OUTSOURCING CRISIS
The collapse of Carillion and the spiralling situation of Capita and Interserve serve as reminders that multinational outsourcing companies are bad value for our public contracts. They act as debt laundering schemes, starving pensions and services of funds in order to fuel profits and dividends.
Following Carillion’s collapse, Capita, another outsourcing giant, saw its shares plummet on 31st January by 47%, their lowest value since 1998. Interserve, another outsourcer which has contracts to provide nurses and care assistants in Scotland, served a profit warning last year. On 1st February, their share value fell another 15%.
Why did Carillion collapse?
When Carillion collapsed just over two weeks ago, on 15th January, it had a huge pension deficit.
Essentially, the company had not provided enough money to pay workers’ pensions, despite paying shareholders dividends of £78.9m in 2016, exceeding the amount it generated in cash from operations. It paid a further dividend of £54 million in June 2017 – just one month before its first profit warning.
In 2012, outside advisers said Carillion had prioritised growing earnings and supporting the share price ahead of the pension scheme. For 10 years, the Carillion pension trustees tried to get the company to pay in more money to the scheme without success; so the profit warning in mid-2017 was not a surprise to those in the know. Hedge funds had been betting against them since 2015. Despite these concerns, its Chief Executive, Richard Howson, received a payout in 2016 of £1.5m. As its profits decreased due to low margins, Carillion took on more debt (to meet its day to day running costs) and stockpiled contracts from Government.
As others have said, Carillion was operating a giant Ponzi scheme. That they received £1 billion in taxpayer’s money, while known to be in huge financial difficulty, suggests the UK Government was complicit in maintaining an outsourcing system against the public interest.
The slide in Capita and Interserve’s share price has led to understandable comparisons and questions being asked as to whether another outsourcing conglomerate is about to fall.
What about workers and projects in Scotland?
Carillion had 1,169 workers directly employed in Scotland, with 112 working as modern apprentices. A number of other workers are not directly employed but are also impacted by Carillion’s collapse, including those working for sub-contractors on projects such as the Aberdeen bypass; railway work at Paisley, Shotts and Waverley Station; and various facilities management contracts with public bodies and Housing Associations.
The liquidator is attempting to secure a transfer of Carillion workers over to other companies – for example Balfour Beatty and Galliford Try in the case of the Aberdeen bypass – but has already announced 377 redundancies across the UK.
Capita employs an estimated 4,000 people in Scotland involved in financial services; human resources; information technology; life & pensions; property services; software; police and justice; and emergency services. They run the £325 million Scottish Wide Area Network (SWAN) contract involving the Scottish Government, NHS and more than half Scotland’s local authorities which aims to establish a single shared network and common ICT infrastructure across Scotland’s entire public sector.
How are Unions responding?
Unions have been warning about precarious work in the construction and outsourcing industries for decades, and despite union campaigns and even legislative change, public contracts continue to be awarded to the worst offenders. Bogus self-employment; umbrella contracts; a serious lack of health and safety standards; and the systematic blacklisting of workers – these are scandals which our procurement and outsourcing systems facilitate.
A clear audit of the workforce is desperately needed and the STUC will be working with other unions to attempt to develop this and wider research into the construction and outsourcing industries.
In Scotland, as across the UK, Carillion symbolises a decaying carcass of public service provision based on financialisation and outsourcing. Whilst wages stagnate, the cost of living rises, and austerity continues, workers and taxpayers are left to pick up the costs of outsourcing.
Surely we can do better than this? The STUC is calling on the Scottish Government to:
- Bring Carillion contracts back in-house;
- Map the impact of Carillion’s collapse and explore the impact of any exposure to Capita and Interserve. As well as direct employees, this exercise should consider the wider supply chain of agency workers, self-employed workers and those on umbrella contracts;
- Place a moratorium on public service outsourcing while a root and branch review is carried out;
- Commit to ending PFI and similar, Scottish specific schemes, and work with public bodies to minimise costs on existing projects including through buying out schemes where appropriate;
- Establish a Scottish National Construction/Investment Company to take forward public infrastructure and investment projects.
The only way to win these demands is by ensuring that workers immediately affected are engaging with each other through their unions, and taking action to put them into effect.