In the wake of the costly collapse of Carillion, the Government has launched new proposals to oblige key suppliers and outsourcers to prepare plans for the continuation of critical services should the business fail. But can these so-called ‘living wills’ work in practice, and should Government be more proactive in monitoring the performance of key suppliers and outsourcers, to ensure it is ready to step in should the situation require it?
The drawing up of these proposals to introduce ‘living wills’ seems to be the recognition the Government needs to look closer at the terms of supply contracts, and put in place robust fall-back plans. These contingency scenarios, should they be given the ‘go-ahead’, will allow the Government to take control of critical services, bringing them under direct management or transferring them expeditiously to other suppliers. By taking this action, it will be possible to minimise disruption and protect the interests of taxpayers in the event of a supplier experiencing financial difficulties.
The Spectre of Carillion
Testing for the future
Alongside a period of stress-testing for these contingency plans, the Government needs to implement a more cohesive method of ensuring the resilience of contractors. Rather than focusing solely on costs and commercial terms, it will be important to weigh up possible risks on a contract-by-contract basis, considering a variety of possible scenarios and issues that could occur. Maintaining close relationships with key suppliers and outsourcers after contracts have been awarded and monitoring their performance delivery, the Government should be able to step in, if required, before vital public services become compromised.
Assurance should be key
There have been discussions in regard to publishing information about the performance of critical contracts. Greater collaboration between procurement agencies and prospective suppliers before, during and after the awarding of contracts could also be a further requirement. The strength of bidders’ contingency plans should also be a consideration before signing a contract, rather than simply favouring the lowest price. All of this will help underpin the financial sustainability of contractors.
As well as ensuring contingency measures are included in contract provisions, insolvency practitioners should be engaged to stress test any plans, as to ensure they are robust enough to protect taxpayers’ interests and the provision of public services from any unexpected circumstances that could occur.
By forming part of a wider drive to shift procurement towards the delivery of positive social outcomes, it is clear that ‘living wills’ could play a key role to help prevent a similar crisis occurring as happened when Carillion collapsed. For these plans to truly prove effective, however, it is vital a culture of collaboration is endorsed, alongside an ongoing commitment to monitoring suppliers and outsourcers.
For further information in regards to living wills please contact Simon Underwood our insolvency partner by email SUnderwood@menzies.co.uk or +44 (0)20 7465 1932