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Herald Scotland

First Carillion, Now Capita? We Need To Change How We Outsource

It is just over three months since the giant construction and outsourcing firm Carillion entered compulsory liquidation, throwing 19,000 people’s jobs, livelihoods and pensions as well as hundreds of public service contracts into jeopardy.

With Capita now issuing profit warnings, it is time we take stock and ask what needs to be done to ensure a more sustainable and equitable relationship between the public and private sector.

Last week at the TUC, we published a new report that seeks to do exactly this. We’ve focused on three areas in need of change – employment rights, corporate governance and public service outsourcing.Our recommendations speak to the need to protect workers and sub-contractors in insolvency situations, promote more responsible business practice and place public interest at the heart of how we commission and deliver public services.

Protecting the Workforce in Insolvency Situations

Under the current system, unions are often the last to know about a risk of mass redundancies or business closure. Employers should engage in early and meaningful consultation with unions about the interests of workers as soon as there are these warning signs. And when companies enter liquidation, the law currently fails to protect the interests of workers, is heavily weighted in favour of the creditors, while the taxpayer is too often expected to pick up the bill.

Given this, we proposed a number of changes to UK employment law to better protect working people and their families. We want to ensure that consultation with unions and workplace reps start as soon as redundancies are being contemplated, and we want to re-instate the 90-day consultation period where more than 100 jobs are at risk.

We also need to strengthen TUPE and other legal protections to secure the pay, pensions and union recognition for those potentially moving to a new employer in insolvency situations, and allow all workers to recover foregone wages and holiday pay, including those on insecure contracts like agency workers, those on zero hours contracts and the self-employed.

Unions protect the rights of workers and it is imperative we are given a seat at the table.

Promoting Better Business Practice and Corporate Governance

The experience of Carillion highlighted ongoing flaws in the UK’s corporate governance system. Investors were paid sizeable dividends and company directors received bonuses whilst Carillion piled on huge levels of unsustainable debt (debt to which the board, investors and auditors appeared to have been oblivious to).

It is the company’s workforce and suppliers who have paid a heavy price for these failings. As such, our report calls for reforms to address shareholder primacy and the reliance on shareholder oversight within our corporate governance system. We must shift corporate priorities towards the interests of all stakeholders.

This should include reforming directors’ duties to make promoting the long-term success of the company their primary duty. Worker directors should comprise at least one third of the board of companies with more than 250 workers, while urgent reform of the mergers and takeovers system is needed.

Putting Public Interest at the Heart of Public Services

The collapse of Carillion has intensified the debate about the role that private companies should play in the delivery of public services. Public confidence in the ability of the private sector to provide high-quality and sustainable public services is waning, following several high-profile failures.

It beggars belief that no agency, regulator or government department can put an accurate figure on how much taxpayer money is spent on outsourced public services or which companies hold what contracts. Without such transparency, there can be little accountability to citizens or elected representatives.

We believe that the time has come for an urgent change of direction. Our new approach would put public interest and the public service ethos at the heart of decision making, with public ownership and management as the default setting. To do this, we call on the government to identify a set of ‘make or buy’ public interest criteria that explains how the delivery mechanism chosen best promotes a public service ethos, is accountable to service users and elected representatives and delivers quality services in a sustainable manner.

Such an approach would apply to all significant commissioning decisions across the public sector and a review should be undertaken into current outsourcing contracts with a view to renegotiate and/or terminate where this is demonstrably in the public interest. Finally, government should create a central clearinghouse for evaluating the performance of companies across multiple contracts.

Moving Forward

The TUC will continue to press the government for these changes but there is also a job for unions and other campaigners to work together to achieve a cultural change across the public sector. The ‘Seven Principles of Public Life’ should act as the bedrock for our public sector.

There is plenty that those commissioning services, local councillors and decision-makers can be doing now to start a new approach to how we design, deliver and manage our public services, moving us away from the current system that offers neither equity nor sustainability.