Multi-Decade Outsourcing Boom Comes to Sticky End in the UK

After scandals, collapses, and the government’s off-balance-sheet debt.

The United Kingdom, widely considered to be the birthplace of the modern incarnation of the public-private partnership (PPP), in which private firms are contracted to complete and manage public projects, could be one of the first countries to jettison the model.

The collapse in January of 200-year old UK infrastructure group Carillion, whose outsized role in delivering public services earned it the moniker “the company that runs Britain,” has fueled concerns that other big outsourcing groups could soon follow in its doomed footsteps.

Last week the CEO of Interserve, another large outsourcing group, revealed that the government has given the firm a red rating as a strategic supplier, meaning it has “significant material concerns” about the company’s finances.

Fears are growing that Carillion was not a one-off episode but rather the swan song of a deeply flawed and dying business model. Those fears were hardly assuaged by the release this week of a damning parliamentary report into the UK government’s practice of outsourcing public projects through so-called Private Finance Initiatives (PFIs).

PFI deals were invented in 1992 by the Conservative government and then enthusiastically rolled out by the subsequent Labour government. In theory, for a public body to use PFI, or PF2 as the latest iteration of the financing scheme is termed, Treasury rules require it to demonstrate that this financing route provides better value for money than conventional government procurement. In practice, neither the Treasury nor individual government departments have developed any effective means to assess the actual value for money of PFI projects

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