Latest privatisation lessons

There is a very good piece by David Walker in Guardian Professional this week that deserves greater attention.



His story refers to the collapse of the outsourcing company Mouchel. This company has a somewhat chequered history, rebranding itself in a complex story that makes due diligence all the more important. The company has been taken over by its creditors and they include the part-nationalised RBS. So we the taxpayer end up bailing them out. Sound familiar?


Why does this matter? Well you do have to wonder how this company was awarded public contracts. When last December they announced a £65m loss, any organisation that contracts with them will know immediately that cost cutting has to follow with a consequential impact on the service. Typically, many service contractors price at cost and then make their profit by cutting corners. The problem for the public service is that the in-house expertise has gone by the time they discover this reality.


The naivety of some public bodies is highlighted by the response of John Beesley, the Tory leader of Bournemouth, welcoming the banks' takeover of Mouchel: "It removes the uncertainty surrounding the future of the company". As Walker points out, "On the contrary, the banks are likely either to try to exit very quickly or dismember the company to minimise their potential losses."


Walker also highlights developments at our old friend G4S and pays tribute to the work on utility pricing by the Cuthbert’s at the Jimmy Reid Foundation. All of this highlights how companies use financial engineering to raise profits. Something UNISON has highlighted in PFI schemes over many years.


The Scottish Government’s legislative programme includes several pieces of legislation that are relevant to this issue including; Procurement, Better Regulation and Community Empowerment. Those scrutinising these proposals would do well to learn the lessons of the Mouchel debacle.