Carillion’s Collapse: The Impact on UK Defence

Carillion’s collapse last week has led to much hand-wringing about its causes and probable consequences.

This is hardly surprising given that Britain’s second-largest services and construction firm had more than 43,000 global employees, 20,000 of those in the UK and a similar number again employed directly within its British supply chain.

To date, however, there has been little coverage relating to UK defence. This is surprising given that Carillion has been playing an increasingly important role for Britain’s Ministry of Defence (MoD), as its largest provider of facilities management services.

Prior to its collapse, Carillion operated across a portfolio of contracts, worth about £1 billion, supporting more than 360 UK defence sites and establishments. Services included engineering, maintenance and repairs, the management of armouries and stores, security, administration, accommodation and catering.

In a joint venture with Amey, a business known as CarillionAmey, it maintains close to 50,000 service families’ homes and, with KBR, Carillion was responsible for the Army Basing Programme – the re-rolling of forces across the UK and resettlement of troops from Germany.

These partners will take on Carillion’s responsibilities since they are separate legal entities and therefore not fundamentally exposed to the collapse. However, the broader impact on the UK defence enterprise should not be dismissed and falls principally into three areas: the philosophical; strategic; and practical.

The philosophical question relates to the concept of ‘partnering’. This can be defined as being about a long-term non-adversarial commercial affiliation between the MoD and a specific company or companies within a specific sector of defence. The relationship becomes central to the delivery of effective and affordable capabilities, with MoD and the contractor working as sector equals with common service obligations for delivery rather than as conventional customers and suppliers.

Government and industry come together to, somehow, lever-in to public services the private money that government neither has itself nor can afford to generate through taxation or the money markets.

Across the defence portfolio partnered arrangements these relationships are believed by some to deliver greater value for money than sole public sector provision. This is said to be achieved by government transferring to the private sector – with its greater expertise – costs and risks that would otherwise be borne solely by the public.

This is such a core set of beliefs that the British Army’s in-house think tank – the Centre for Historical Analysis and Conflict Research – only last week suggested that more roles, such as the guarding of overseas bases, the operational training of foreign armies, intelligence handling and the detection and destruction of unexploded ordnance should be transferred to the private sector.

However, having a key commercial partner fail could demonstrate to decision-makers that their belief in partnering for defence has its limitations or that, at the very least, greater due diligence and on-going governance should be undertaken.

Furthermore, we are seeing in Britain’s contemporary national political discussion a lively debate on renationalisation as a concept, and on the primacy of the public sector in services’ delivery. This is being driven by the reshaping of the parliamentary front bench of the Britain’s opposition Labour Party, and defence is not immune from this discussion.

Yet the Carillion case seems to both support and profoundly challenge this thinking. Despite benefiting from significant governmental defence contracts, it can be seen from the liquidation reports that Carillion has few fixed assets other than a small amount of cash.

Many buildings, sites, and items of plant and machinery that the company used were rented rather than owned. In a sense, therefore, even if we wished to bring these activities back into the public sector in the future, there are very few physical assets to ‘renationalise’.

Also, many of the facilities management activities were being conducted by third parties contracted by Carillion; the company was in many ways, and on many sites, just a contracts’ manager whose only real asset was the principal contract.

The argument could be made that the money paid over to Carillion should be kept within the MoD, which could then sub-contract to suppliers. However, but this means that the military is still dependant on the private sector for key services.

Moreover, there is little evidence that civil servants or military officers make great supply chain managers, and there seems little appetite for the massive expansion of the civil service to undertake integrated facilities management across the defence estate as an in-house activity.

Instead, it appears that neither those who champion partnering nor those who favour public sector primacy or exclusivity can harness the Carillion collapse to their cause.

The third point is a practical one – although one with potentially strategic consequences. Carillion staff and suppliers were responsible for the very fabric of defence – the UK sites where Service people work and the homes where their families live.

While there have been improvements, the maintenance record of the defence estate, particularly service families’ homes, is far from excellent. Plymouth Moor View Conservative MP Johnny Mercer, a member of the House of Commons Defence Select Committee – and a former Royal Artillery officer – said he was ‘ashamed’ that the failings were taking place under a Tory government.

For a proportion of Service families, the collapse of Carillion is a metaphor for their poor living conditions and a practical reminder of how low their welfare appears within management priorities.

As the armed forces struggle to retain critical, experienced staff and recruit new Service people in the numbers necessary to be viable, the stories associated with site management and the conditions of Service homes need to practically inspire, not principally revolt.

To fail in this regard is to promote a practical point to a strategic imperative. Indeed, this might be the real impact of Carillion’s collapse.

Nothing in this analysis should be construed as making any statement or expressing any opinion by either RUSI or its employees about the financial standing and/or potential liabilities of any other company referred to in the text.