Cabinet Office speaks out after Capita profit warning to assert that none of its suppliers ‘are in a comparable position to Carillion’

The government has reiterated that it does not believe that any of its key suppliers are in the same position as collapsed outsourcing giant Carillion after fellow government contractor Capita issued a profit warning this week.

Shares in Capita fell after the firm’s new chief executive Jonathan Lewis set out steps to address what he called its “short-term focus” and lack of “operational discipline and financial flexibility”.

The firm has a host of contracts across the public sector, including customers in Whitehall, as well as local government, healthcare, law enforcement, defence, and education.

Its existing engagements include the provision of electronic tagging services for the Ministry of Justice, providing 10 customer enquiry lines for the Department for Work and Pensions, and running the AXELOS firm that commercialises government intellectual property, such as the PRINCE2 project management system, in a joint centre with the Cabinet Office.

The firm also administers teachers’ pensions, provides support with workplace pensions auto-enrolment and operates the Gas Safe scheme for utility repairs on behalf of the Health and Safety Executive, as well as running the London congestion charge.

As recently as a week ago, Capita announced an extension of its engagement with Sheffield City Council to help the “transform and enhance services” across the city. The project will involve initiatives such as installing new traffic-monitoring cameras and app-enabled pay-and-display machines.

New boss Lewis has proposed a new rights issue to try to raise £700m of extra capital to shore up the company’s position as well as halting dividends to shareholders.

Its warning comes after large outsourcing and construction firm Carillion collapsed last month, after months of speculation that it was unable to service its debts.

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The Cabinet Office has announced plans to ensure that the public services operated by the firm are maintained and, following Capita’s profit warning, said that it did not believe any other suppliers faced the same issues as Carillion.

“We monitor the financial health of all of our strategic suppliers, including Capita,” a government spokesperson said. “We are in regular discussions with all of these companies regarding their financial position. We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”

In a statement in the House of Commons, recently appointed minister for implementation Oliver Dowden – whose ministerial brief includes the Government Digital Service – added that it was in Capita is in a different situation to its fallen competitor.

“The issues that led to the insolvency of Carillion will come out in due course, but our current assessment is that they primarily flowed from difficulties in construction contracts, including overseas,” he said. “By contrast, Capita is primarily a services business and 92% of Capita’s revenues come from within the UK.”

He said the measures taken by Capita were “designed to strengthen its balance sheet, reduce its pensions deficit, and invest in core elements of its business”.

“Arguably these are exactly the measures that could have prevented Carillion from getting in to the difficulties that they did,” he added.

However, Labour’s shadow Cabinet Office minister Jon Trickett raised the spectre of another outsourcing crisis, saying: “We cannot afford another Carillion.”
He added: “The government must take serious steps to oversee the activities of Capita, which is the third major outsourcing company in the last month to issue profit warnings [after Carillion and Interserve].”

The head of the Trades Union Congress, Frances O’Grady, called on ministers to urgently look at all big outsourcing companies’ finances.

“Today’s profit warning from Capita is really worrying,” she said. “That’s why the TUC is calling for an urgent risk assessment of all large outsourcing firms. It’s essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk.”