Have you heard of Interserve? If you’re one of its 45,000 employees in the UK, then yes. If you work in the country’s public sector, then probably. If not, you may have noticed but barely registered the studiedly bland name on a hospital cleaner’s uniform, a security guard’s badge, or a construction worker’s hi-vis vest.
But you’re much more likely never to have heard of Interserve at all. Which is strange, given it’s one of the government’s largest contractors, providing an array of cleaning, security, maintenance, probation, healthcare and construction services across the country.
From train stations to schools, Interserve is there, running things (or not, in the case of its disastrous recent foray into the energy-from-waste industry, when the company racked up £630m debts).
Having refinanced with a £300m rescue deal last March and issued a profit warning last September, Interserve’s future hangs in the balance this week as it awaits shareholder backing for another rescue deal to avoid administration.
One-third of government spending (£284bn) goes to external private contractors like Interserve, according to a 2018 report from Whitehall-watching think tank the Institute for Government (IfG).
The idea is that market competition will produce good quality, value-for-money services, but this rationale has broken down in recent years.
The largest outsourcers continue to win an increasing number of these contracts. A fifth of all Whitehall procurement spending now goes to the largest of these companies (which receive over £100m annual revenue from central government), up from an eighth in 2013, according to the IfG’s research.
“Government is failing to create a healthy, competitive market for the services it contracts,” writes the IfG’s Tom Sasse.
Exacerbating this dilution of competition are the long-term, risky contracts that see profits decline for private providers like Interserve. They have “bankrupt” business models, according to a report into their lack of profit growth by the Financial Times last December.
When their profits fall – as Interserve’s profits from running probation and cleaning services have done, from 3.1 per cent in 2013 to -0.4 per cent last November – companies are forced to chase yet more public sector contracts.
Last year, the collapse of government outsourcing behemoth and UK’s second-largest construction company Carillion, and trouble at other big contractors like Capita and Serco, revealed a problem that goes to the heart of government procurement. Part of its cause is cultural. Why are enormous companies bidding for contracts in areas where they have little experience anyway?
Interserve began in 1884 as the London and Tilbury Lighterage Company, transferring cargo between ships, and over the years became a modern construction firm. How did it move into the world of welfare under the coalition government, providing welfare-to-work services for the Department for Work & Pensions’ ill-fated Work Programme?
“What on earth is Interserve doing… involved in the UK’s welfare-to-work programme, with a training service for job seekers?” wrote the Independent’s Mark Leftly at the time in 2014. “What can a construction firm add to the running of the probation service?”
Indeed, “too much complexity” and “trying to do too many things at once”, is one of the problems that has led to Interserve’s current predicament, according to industry expert Russ Mould.
Other recent high-profile outsourcing controversies include Serco’s management of housing for asylum seekers, G4S’s bungled security contract for the London 2012 Olympics, and Atos’s abortive provision of work capability assessments for disability benefits.
With Carillion’s collapse costing the taxpayer £148m, and other outsourcing giants like Interserve teetering on the edge, questions about the role of private money in public services grow ever more urgent.
At what level do profit margins benefit the taxpayer, and can these be kept in check? How can you prevent a mere 25 companies increasingly gobbling up government business across a huge variety of sectors? And when is it worth taking certain services in-house and running them publicly? (Having analysed government procurement practices, the IfG warned Whitehall to confront these issues with a series of recommendations.)
Not only have most voters never heard of these meaningless company names – G4S, Serco, Capita, Interserve, Sodexo, Mitie, and previously Carillion – running our country, but they may ask: are they even running it at all?
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