When risks become realities: five lessons for commissioners from the Carillion collapse

The collapse of Carillion has had far reaching impacts on its employees, on suppliers who are waiting to see if their bills will be paid, on hospital workers who were expecting to use newly built facilities, and on people throughout the country who rely on the public services that it delivered. Carillion is not the first public service outsourcing company to collapse and it won’t be the last. 

The scale of loss may not equal that of Metronet at London Underground, but the wide reach of Carillion’s contracts and apparent speed of its failure has caused many commentators to speculate whether this collapse marks the beginning of the end of the whole public private partnership model. They argue that because the ultimate risk in these contracts can never really be transferred, and the public purse will always have to pick up the recovery costs of a corporate failure, the whole model is flawed.

Carillion may not be a one-off, and lots of economic analysts have been poring over the reports and accounts of Carillion’s rivals to look for evidence of over ambitious revenue forecasts or unsustainable business models - see for example a comprehensive piece of analysis from Adam Leaver at Sheffield University. It seems clear that this whole sector is not cash or asset rich right now and is not well equipped to cope when individual projects go badly over budget. I’ll leave it to economists to make the case for whether a business model with the Government as the only customer will always lead to companies underbidding contracts to chase revenue and eventually to market failure. As a systems engineer, my experience has been in working with leaders across public, private and third sector organisations who are caught in the middle of this debate and have to find ways of making existing contracts work better today, and commission new ones that can operate sustainably into the future.

Of course, any contract can go badly off the rails and any company can fail. But the larger and more complex the business model of a corporation, a delivery consortium, or indeed a charity, the greater the chance that it can be brought to collapse by a failure in a distant part of the organisation, far from the contract you are managing. So in that context, what do we mean by risk transfer, and what does good practice look like at times when a significant potential risk, that commissioners believed they had transferred in a contract, starts to become a reality?

Viewed from this perspective the question becomes less about ideology or the rights and wrongs of public-private partnership and more about how to manage risk in long term, complex, multi-party systems. For me, the foundation to making progress is an acceptance that when a potential existential risk becomes material, no single party - contractor, commissioner, operator, or service user is likely to have all the knowledge necessary to manage the consequences on their own. It becomes a dance of interdependencies.

There are lessons to draw on here from the world of infrastructure programme and portfolio management. The first step in managing the risks is to have identified a set of leading indicators of future delivery performance that will show when partnership contract or multi-party relationship is starting to wobble - while there is still time to turn it around. And then to have a Governance Board structure and risk escalation process in place which will quickly bring the right people around the table to act on what those leading indicators are telling them.

I recently helped to run a roundtable review for a group of infrastructure programme Board members and a number of useful lessons emerged from their discussion, that would seem useful for public service commissioners in all sectors who are considering their delivery risk.

1.    Good process can’t compensate for poor leadership

Most of programme management assurance is based on assessing the processes of project control, progress monitoring, and so on, and whilst this is necessary it is not sufficient. Successful delivery is based just as much on how leaders use those processes, communicate with the people around them, and build collaborative teams.

2.    Perfect alignment between incentives and objectives is rare

Alignment of goals and incentives across all parties can never be 100%. It is more important for leaders to be honest about areas of mismatch and to be able to handle the consequences. Poorly aligned objectives and incentives can produce perverse behaviour. Good leaders notice the behaviour and reset interdependent targets rather than blaming others or exploiting the situation for the gain of their own organisation.

3.    Judging progress from paper reports is only getting half the story

There can be many reasons why a Board report can appear to be out of step with what is visible on the ground or what service users are experiencing. Governance Board members need to build a rich picture of progress from a number of sources and different perspectives – including personal experiences.

4.    Change is inevitable – so strategic input to decision making is vital at every stage

In the long run, ‘successful delivery’ is defined in terms of the future service delivery benefits not simply in terms of blind delivery of the original plan. A small change to the external environment can have big implications to the long-term success of a programme. A Governance Board needs access to a broad range of knowledge, strategic expertise and understanding of the future political and economic context to enable them to play the necessary strategic scrutiny and direction setting role when changes happen and plans have to be re-evaluated mid-term.

5.    A transactional approach to contracting doesn’t fit a complex and changing environment

When setting up a contract for a large infrastructure programme, if people ask the market for low bids that is what they get. Clients and contractors know that requirements will change and this is where contracts will become financially viable to an under-bidding contractor - but this sort of transactional procurement process doesn’t encourage honesty. People may talk about a long term shared vision for a partnership or a holistic delivery model but often end up buying a series of discrete and mismatched products. 

So how can these infrastructure programme lessons be applied to a world of outcome based public service delivery contracts or SIBs? How can we develop indicators that will show when a contract or public partnership is starting to go wrong, and what frameworks and leadership capabilities are required to turn around a project that is starting to head off track?

If you know of good examples of proactive multi-party collaboration when it comes to managing risk in these sorts of public service delivery partnerships, or stories of the successful turnaround of an ailing contract that we can learn from, we would welcome your contribution to the conversation. 

Get in touch with us at golab@bsg.ox.ac.uk or join the conversation on Twitter.

David Archer is a GO Lab Fellow of Practice. David is a management consultant and for the past 16 years has been a Partner at Socia Ltd – a consultancy company that specialises in supporting leaders in multi-party collaborations.