Public sector ‘likely to suffer’ with collapse of Interserve

15 Mar 19

The collapse of outsourcing giant Interserve will be “costly and disruptive” for the public sector, a public services commentator has told PF.

Interserve, one of Britain’s biggest government contractors, was due to file for administration this evening.

This was after just under 60% of the company’s shareholders voted against a rescue plan earlier today.

The business holds thousands of public sector contracts, including for local government, cleaning schools and hospitals. It also runs catering and probation services as well as managing construction projects. 

John Tizard told PF that public sector clients will need to “spring into action either to bring the services back into public management or to broker the contracts to other contractors”.

The firm’s collapse will likely be “costly and disruptive” for public services, he added.

The ‘deleveraging plan’, proposed on Friday, would have seen creditors take control in a ‘debt-for-equity’ swap. It was rejected 59% to 41% by shareholders.

The rescue plan would have meant lenders being given the greater number of shares in the business with the shareholders’ stake being reduced to 5%, the BBC has reported.

A US hedge fund Coltrane, which owns 27% of the company, voted to reject the proposals.

Tizard told PF: “It’s another question mark over the appropriateness of outsourcing particularly on this scale - to companies that have business models which are risky and fragile and where ownership changes.

“They are likely to go into administration because Coltrane has said they won't vote for the deal, but can we really afford to have key public services decided by US hedge funds?” he queried.

Tizard said he had no doubt that contingency plans will have been drawn and added that it was now necessary for public sector clients to implement these.

Interserve employs 45,000 people in the UK. Its website also states that it provides probation services for 40,000 people on behalf of the Ministry of Justice.

A damning report from the National Audit Office recently highlighted the failings of prison reforms, which saw probation services transferred to the private sector.

Frances Cook, chief executive of the Howard League for Penal Reform, reacted to the news on Twitter:

Jon Trickett, Labour’s shadow minister for the Cabinet Office, said: “This latest disaster, which could have been avoided, shows that the government is not prepared to change their dogmatic attachment to outsourcing, and it is costing the country dearly.”

A statement from Interserve said: “The board of directors of Interserve Plc announces that it intends to apply to the High Court in London for the company to be placed into administration.”

It added: “The board believes this is the best remaining option to preserve value, protect the jobs of employees and ensure the group can carry on as normal with minimal disruption.”

A Cabinet Office spokesman said: “This announcement will not affect jobs or the provision of public services delivered by Interserve. We are in close contact with the company and we are confident a positive way forward will be found.”

Interserves troubles come just over a year after the collapse of another major outsourcing company, Carillion

See here PF’s investigation into public sector outsourcing, which shows it is becoming less popular with local government

Research by the Institute for Government think-tank from December found that a third of government spending goes on external contractors and suppliers.

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