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Capita’s collapse would be far messier than Carillion’s

While we don’t yet know whether Capita will fail, the mere risk should spur government action on this critical issue.

Losses at one of the Government’s favourite companies could hit the public at every level, warn Nick Davies and Oliver Chan. But does anyone – even in Whitehall – know the scale of the problem?

Yesterday Capita reported a £513 million annual loss, and now the company, one of the Government’s most favoured outsourcing providers, is planning to raise £701 million from shareholders.

This has drawn inevitable comparisons with the recent collapse of Carillion, which went into liquidation in January following the release of three profit warnings in the preceding six months. The Government has managed Carillion’s collapse with relatively little interruption to public contracts, continuing to pay staff working on them.

But if Capita was to fail, managing its collapse would not be as easy, and the damage would be significantly worse for government departments, local councils and the British public.

For one thing, Capita is a bigger provider of government contracts. Whereas Carillion had around 450 contracts with government, it is likely that Capita has over 1,000 (data via OpenOpps).

And unlike Carillion, whose government contracts included big construction jobs, Capita largely provides complex services. These responsibilities are as diverse as teacher pension schemes, TfL congestion charges,  BBC licence fees, NHS trainee GPs’ payroll, and administrative support in schools and NHS primary care services. They cover every level of government, from Whitehall to the town hall. Failure to pay salaries would have a far more direct impact on public sector staff and the public than delays to construction projects.

It would also be trickier to continue these services in the event of failure without bailing out the whole company. This might or might not be welcomed by the public, but would be only reluctantly adopted by the Government as it would signal to potential contract bidders that any poorly performing providers will be rescued by government.

Preparing for potential “provider failure” is harder than it should be due to the extremely poor quality of contracting data. The quality of contract data published on sites such as Contracts Finder is incredibly poor. This is not down to secretiveness but, remarkably, to the fact that the UK Government still lacks complete information on how many outsourced contracts it has, the value of these contracts, their length, types of services provided, which public authorities are buyers and which firms are in the supply chain.

The Institute for Government has long called for government action on contract transparency. We are currently undertaking a new project seeking to map the outsourcing landscape that will make recommendations in this area in the coming months. While we don’t yet know whether Capita will fail, the mere risk should spur government action on this critical issue.

Institute for Government

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