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Interserve Reaction - Firm Given £Millions In Public Contracts Despite Nationalisation Plan

Interserve could have become a state-controlled company if it had been found an alternative survival plan
18 March 2019

Interserve was handed £233 million worth of public sector contracts in recent months despite being on a government 'watch list' set-up to avoid Carillion-type risks.

The Mail on Sunday claimed to have been sent a Whitehall strategy memo that showing a proposal to create a state-controlled company if Interserve went into liquidation.

Interserve went in to administration on Friday March 15 - the Plc had all its assets 'sold' off to the company's lenders to pay off debts (and secure further borrowing) leaving shareholders with not so much as a penny and subcontractors and those in the supply chain fearful of bills going unpaid.

According to the Tussell, a UK government contracts data provider, Interserve was handed contracts worth £432 million in 2017 and £233 million last year.

The biggest contract, in July 2018, was awarded by the Foreign and Commonwealth office in a £66 million 'total facilities management' deal.

Insterserve had issued profit warnings in May 2016, October 2017 and November 2018 and in December 2018, with debts of £650 million, announced a debt for equity rescue deal.

Since then, the company has been awarded £6 million in public contracts. Interserve now holds £2.1 billion of public contracts, according to the GMB union.

Rehana Azam, GMB National Secretary, said: "Awarding hundreds of millions in taxpayer funded contracts to troubled outsourcing companies is the height of irresponsibility.

“Interserve was clearly in trouble and yet Ministers saw fit to hand it hundreds of millions of pounds of public money. What on earth were they thinking? “This Government’s obsession with outsourcing has now put another 45,000 jobs at risk, along with thousands more in the supply chain."


Safe for now?

Interserve employs 68,000 people around the world with 45,000 in the UK. The company's Board have declared that the move in to administration and the subsequent sell-off of Interserve companies means it is business as usual for employees and customers - and possibly a better business as the Group moves on without the burden of debt and with £110 million in capitalisation being offered by the new owners.

However, the new owners, which include HSBC and the Royal Bank of Scotland along with investors Emerald Asset Management, Davidson Kempner Capital and Cerberus are likely to want to divest themselves of the business and can start selling-off shares on March 20.

One analyst has already suggested Mitie might bid £100 million for Interserves FM business - but most sensible thinking is the lenders would want more and Mitie is itself in enough trouble not to want to take on that kind of risk.



The GMB's Azam continued: “The outsourcing sector is descending into chaos as companies underbid each other for contracts in a race to the bottom which will see a serious decline in public services.

"What happens in the medium to long term? Lenders will now be owners with no appetite for or expertise in running an outsourcing company. They will want to sell as soon as reasonably possible. This creates uncertainty for customers, staff and suppliers."


At risk?

Kevin Brandstatter, GMB's National Officer fuelled further concerns when he said: "Around 200 companies that provided IT, HR and property management services to the now defunct parent group risk losing their contracts or not being paid for work carried out.

The hit to these businesses, which will be told this week (ending Fri March 22) whether their services are still required, is expected to fuel mounting anger over Interserve’s collapse, a year after the failure of rival outsourcer Carillion.

"Around 16,500 smaller shareholders in Interserve have seen the value of their investments wiped out. EY, the administrator, which has set up a replacement parent company, said unsecured creditors would join a queue for a £600,000 fund.

Ernst & Young have already said that 'a small proportion of suppliers affected will be unsecured creditors and will all rank equally'.


National Federation of Builders

Interserve is a major player in the construction sector. National Federation of Builders says this latest collapse shows why there is a need to reform the procurement process from its foundations. Richard Beresford, chief executive of the NFB, said: "Monday March 18 saw thousands of direct workers and those in the supply chain wondering if they still had a job. The news regarding Interserve highlights why reforming procurement is so vital. It also demonstrates the importance of using companies that win work on reputation and those that are engrained into their local supply chains. The damaging trend to work within wafer thin profit margins must not continue and government needs to spread risk across fiscally responsible businesses who reinvest profits and are not bound by shareholders.

"As with Carillion’s collapse, the NFB will be doing all it can to support members who are part of Interserve’s supply chain, as well as the many workers and apprentices affected by this decision."


Tier 1 reform

Neil Walters, national chair of the NFB, said: “When will clients see the advantage of using financially sound SMEs, who are in control of their business and win work on reputation?

“Tier 1 contractors must reform to demonstrate value for money, an appropriate financial model and respect for their suppliers, staff, and the long term victims of their decisions. Otherwise this cycle of failure will keep hurting our industry, costing taxpayers’ money and good people their jobs and businesses.”


PCS calls for job and employment right guarantees

The PCS union, which represents members working for Interserve on contracts across government, is demanding there are no job losses and employment rights are protected.

PCS has members working for Interserve providing services including security, messengers, print room, porterage, cleaning and catering in a number of government departments, including the Department for Work and Pensions, Cabinet Office, Foreign and Commonwealth Office, Ministry of Defence, Defra and the Department for Business, Energy and Industrial Strategy.

The Foreign and Commonwealth Office (FCO) contract was only renewed in December 2018, following a successful bid accepted by the government in August.

PCS is due to start an industrial action ballot on March 25 of members employed by Interserve on the FCO contract against its intention to serve 5 members of staff notice of redundancy on March 22.

PCS made contact with Ernst & Young (EY) and relevant government departments urging that steps are taken to protect our members’ jobs and honour their employment rights - advising this would be best achieved by bringing all work in-house on departmental contracts.

EY's Alan Hudson and Hunter Kelly acted so quickly on Friday March 15 to secure a 'pre-pack' sale, that PCS' missions were ultimately pointless. This statement appeared on an Interserve staff website: 'All companies in the group other than the parent company will remain solvent, providing continuity of service for customers and suppliers'.


TUC in risk register call

Commenting on the news of Interserve in administration on Friday Mar 15. TUC General Secretary Frances O’Grady said: “We can’t afford another Carillion disaster. The government must urgently sit down with unions to protect jobs, and to stop firms in Interserve’s supply chains going to the wall. Interserve has thousands of public service contracts – these must be brought back in house.

“This case highlights again why we need much more scrutiny when public services are handed to the private sector and far more robust oversight of the private firms handed millions by the government. This means a proper watchdog and a national risk register.

“Right now confidence in private providers of public services is at an all-time low and there should be a complete moratorium on any further outsourcing.”


All aboard

The Rail, Maritime & Transport union (RMT) jumped on a similar bandwagon and called for immediate action to transfer Interserve rail contracts in-house.

General Secretary Mick Cash said: "Interserve hold a number of contracts in our industry, including major station facilities management work on Network Rail in the south, and both passengers and staff were left guessing last week what might happen.

"RMT is calling for immediate action to begin transferring the Interserve transport sector contracts in-house to avoid a repeat of the Carillion chaos. The time has come to end this obsession with the private sector speculators and return to the principles of public services run and owned by the public, free from this corrosive nonsense."


Unite don't unite

Unite, the UK and Ireland’s largest union which represents over 1,700 Interserve workers, demanded an urgent meeting with EY as Interserve went in to administration - but fail to join up with the administrator team before the company was sold to new owners.

Following Carillion’s collapse last year, Unite had been warning that similar corporate collapses were inevitable, without government action.

Unite national officer Colenzo Jarrett-Thorpe said: “Interserve’s management has portrayed this as business as normal but this is anything but normal. Workers are being asked to deliver vital public services without knowing who their employer will be and whether they will continue to have a job in the future.

“The government must step in and ensure that services continue and that workers are treated with dignity and respect. Interserve is the latest example of bandit capitalism and this demonstrates that the government’s outsourcing business model is smashed beyond repair."

Picture: Interserve could have become a state-controlled company if it had been  not found an alternative survival plan.

Article written by Brian Shillibeer | Published 18 March 2019


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