Carillion: Will the bells now ring out for social enterprises?

As UK public procurement failures multiply, lawyer David Hunter believes now is the time for social enterprises to demonstrate they can deliver on budget and with a true commitment to social benefit.

The name Carillion is a corruption of the word carillon, meaning a peal of bells, and that company’s collapse has been accompanied by the metaphoric ringing of alarm bells in many quarters lately. In the febrile aftermath of Carillion’s demise, there are familiar opportunities and threats for the social enterprise movement to be aware of and act upon.

The opportunity centres on the fact that there is an enduring alignment of purpose between public bodies and charities and social enterprises built around their shared commitment to achieving social outcomes. This is in contrast to the purpose driving Carillion (and the other private contractors and funders in public markets), which is to optimise investor returns from public contracts.

The threat is equally familiar: the tendency for the public debate to default to the binary and present a straight choice between private or public provision. The threat is potentially exacerbated in this case, as Carillion (and the PFI contracts which formed the core of its business) are predominantly about public infrastructure not public services and, to a large extent, that infrastructure may continue to be something that private contractors are best placed to provide (albeit by a different contractual mechanism than PFI, or its poor relation PF2).

This is a distinction that has often been overlooked in the public debate, but it is an important one for social enterprises to highlight. Public services rather than infrastructure is where social enterprises' strengths are in delivering social impact; it is where, in many respects, public authorities are ultimately judged; and it is where private providers’ weaknesses are increasingly being exposed, as illustrated by two other current examples.

The offender management debacle

The first is the debacle of the Transforming Rehabilitation programme. Another public procurement exercise suffering from giantism, it led inexorably to multi-million pound contracts being awarded to the likes of Interserve and Sodexo, corporates with, in some cases, almost no expertise in offender management, but with track records in managing large contracts and cutting costs. Established specialist providers were squeezed out or offered crumbs through onerous supply chain contracts. Unsurprisingly, the programme has failed in social terms, as evidenced by the Chief Probation Inspector in her review published in December 2017 describing a general deterioration in services and outcomes. It has also failed in financial terms, with the TR contractors receiving a £277m bailout from the Ministry of Justice to keep the contracts going. Thus, service users are failed, social and financial costs for society continue to accumulate and there is not even the anticipated short term financial benefit.

The second is the academisation process, by which education is handed to independent providers, technically charities, but – as demonstrated by the "asset-stripping" the failed Wakefield City Academies Trust has been accused of and the spiralling salaries of academy chief executives – the policy has created opportunities to extract private benefit from public assets and service delivery which many have been quick to exploit.

Part of the post-Carillion debate has rightly focused on questions of corporate governance. This coincides with ongoing and growing advocacy for purpose or mission to become embedded in how businesses operate. The same can be said of public bodies: it would be helpful to be explicit about what they believe they exist to accomplish and for this to be a permanent reference point for their activities. Whilst there is scope for variation in the detail, a reasonable general assumption is that at the highest level it is to optimise delivery of social value – not as something that is a minor line item in a procurement exercise, but as the overarching purpose of the public body.

A reasonable assumption is that the overarching purpose of a public body is to optimise delivery of social value

That leads directly into the commissioning function, so that activities are strategically driven around optimising social outcomes within a budget, with money as a mechanism to enable those outcomes to be delivered, rather than the object of the exercise being not to spend so much. Building commissioning practice around purpose will more likely lead to improved outcomes (in turn, over time, reducing pressures on budgets).

These are changes which I propose for the benefit of public bodies and their constituents, not for the social enterprise sector. However, if implemented, they should create more opportunity for social enterprises to win and deliver public services in meaningful ways for the mutual benefit of the commissioning authorities, the enterprises themselves and their service users. The alignment of purpose between commissioners and delivery bodies can enable more relational and genuinely partnership-based approaches to change and challenges as they arise during delivery, rather than presenting more opportunities to extract income from the public purse. This represents a potential shift in contract management enabled to both partners being on the same side.

Proposing such changes should not be seen as radical, though implementing them would feel so and could have radical consequences. Even if introduced, there is still a massive exercise for the sector to ensure public authorities understand and value both the opportunities that alignment of purpose provides and the practical qualities social enterprises can bring.

The best successfully combine the public benefit ethos at the heart of the public sector with the commercial acumen regarded as an attribute of the private sector. This is very different both to grant-dependent voluntary organisations and to private providers with sophisticated CSR arms. We know that, but must assume hard-pressed commissioners do not. The examples not only of Carillion, but of TR and academisation, demonstrate the risks of working with private providers driven by profit maximisation. Equally, commissioners need to be persuaded not to default to the familiar and take services back in-house by demonstrating social enterprise offers the best, rather than the worst, of both public and private worlds.

If the sector can achieve that, it will have its own, positive carillon moment.

Header photo: Rumena Zlatkova, reproduced under a Creative Commons licence.