Secret back-up plan to nationalise Interserve: Memo shows just how far Ministers would go to save outsourcer
- Civil service put together a proposal to create a state-controlled company
- Government was prepared to move staff into the new company
Ministers drew up secret plans to nationalise parts of hospital cleaning and school dinner contractor Interserve before it was rescued from the brink of collapse last week, leaked documents reveal.
An internal Whitehall strategy memo seen by The Mail on Sunday shows that the civil service last year put together a proposal to create a state-controlled company that would have been on standby in case struggling Interserve went into liquidation.
In that eventuality the Government was prepared to move staff into the new company to ensure vital public services were not disrupted.
Ministers drew up secret plans to nationalise parts of Interserve
The plans are one of the few instances of the Government being prepared to bail out a failed company since RBS and Halifax Bank of Scotland were controversially rescued using taxpayer cash in the financial crisis more than a decade ago.
The East Coast Main Line rail franchise was also brought back into public control when it failed last year.
But the documents raise fresh questions about the structure of the Government contracts system. The entire outsourcing sector is creaking under severe financial strain a year after the collapse of contractor Carillion.
By drafting a detailed emergency plan for one of its contractors, the Government has indicated that it has become so reliant on the services provided by firms such as Interserve, Kier and Capita that it now considers some of them too big and important to fail.
A Cabinet Office spokesman said: ‘We do not comment on leaked documents. However, we would point out that it is sensible for central government and other public sector buyers to prepare for all eventualities – even ones we consider unlikely – and make sure that public services are protected.’
Interserve had to resort to a pre-pack administration on Friday after its shareholders voted against a rescue plan formed by management. Ownership of the company was passed to its lenders and it is no longer listed on the stock market.
As part of the deal, a consortium of banks, including HSBC and RBS, have written off close to £830million in gross debt. After the agreement with lenders on Friday night, Interserve said: ‘It is business as usual for employees, customers, suppliers, and other stakeholders.’
Interserve, which employs 45,000 people in the UK and 68,000 worldwide, said the restructuring safeguarded workers and allowed operations to continue with ‘minimal disruption’.
The Cabinet Office said the move ‘brings the company the stability required for it to compete for future business and continue to deliver good value public services for the taxpayer’.
Analysis by The Mail on Sunday found that Interserve had secured 45 Government contracts worth an estimated £414million since October 2017, when it issued its second profit warning and entered into crisis talks with lenders.
It derives two-thirds of its £2.9billion revenues from Government contracts. The most recent deal Interserve secured from Whitehall was a £600million contract for discharging patients from hospitals. Interserve was one of 16 suppliers named on the contract.
The most recent deal Interserve secured from Whitehall was a £600million contract for discharging patients from hospitals
Interserve’s work with the hospitals started just over a week ago. The company had been charged with moving patients from acute care units into care homes or back into their own residences.
Other key wins included a £66.7million contract with the Crown Commercial Service, an executive agency of the Cabinet Office, awarded last July.
The outsourcer also secured a £31.4million contract with London’s Metropolitan Police. The contract, awarded in January 2018 and ending in April 2028, is for supplying equipment and engineering services.
These contracts were awarded despite chief executive Debbie White warning analysts in February that the company had lost out on £150 million worth of contracts in the final three months of the previous year because it was in financial difficulties.
The outsourcer also secured a £31.4million contract with London’s Metropolitan Police
Last week, Capita posted a 26 per cent fall in profits, which came after a string of profit warnings in 2017 and a £700million rights issue in 2018.
Kier, which undertook a £250million rights issue at the end of last year, revealed last week that an accounting error had added £40million to its debt, sending its shares down by more than 10 per cent. The share prices of Capita and Kier have fallen by 26 per cent and 51 per cent respectively over the past year.
Construction giant Carillion went into liquidation in January 2018 after buckling under a huge debt pile. MPs described the failure as ‘a story of recklessness, hubris and greed, its business model was a relentless dash for cash’.
In the wake of the scandal, the Government asked outsourcers to document details of their public sector work to allow for the smooth transfer of the business in the case of insolvency.