Interserve, the giant government outsourcing contractor, which manages a host of crucial public services, was lifted out of administration by it creditors this week, leaving the NHS to calculate the possible impact.
Interserve has entered a ‘pre-pack’ package, under which it has been sold to the hedge funds and banks, that it owed vast sums of money. This process meant the company’s business could continue and has protected the jobs of its 45,000 employees in the UK for the time being. However, all Interserve’s small shareholders, around 16,000, have lost their money.
Competitors are said to be circling in the hope of cherry picking parts of the business. The Guardian reports interest from Serco and Mitie
The implications to the NHS could be widespread. The company is perhaps best known for its facilities management contracts within the NHS, which cover a wide range of services that keep hospitals running smoothly, such as cleaning, catering and maintenance. However, its major subsidiary, Interserve Healthcare, is a leading provider of nursing and care staff to the NHS and social services. Its staff are contracted to work in nursing/care home facilities and to provide care packages for complex care in community-based settings. Should the company go under, a large number of vulnerable people would be left having to find a new company to deliver care.
The company went into administration after its largest shareholder, the hedge fund Coltrane, refused to support a rescue package for the debt-laden company, but there were warnings about Interserve’s precarious financial situation from late 2017, when the company gave a profits warning.
The company’s first rescue deal to restructure it huge debt was in March 2018. Despite its obvious financial difficulties, Government agencies continued to award the company contracts; in July 2018, two NHS contracts were awarded, a facilities management contract worth £35 million with Barking, Havering & Redbridge Hospital and a contract to extend and remodel the existing Neonatal Intensive Care Unit at Liverpool Women’s NHS Foundation Trust worth £15m, plus there was a deal worth £66 million with the Foreign and Commonwealth Office for facilities management.
The Government knew about Interserve’s problems and in early 2018, a report in the Financial Times spoke of a special government team being set up to monitor the financial viability of Interserve. This was denied by the Cabinet Office, but The Mail on Sunday has claimed that ministers were so concerned that Interserve might collapse that plans were drawn up for the government to take over its contracts to enable hospitals to continue to function. The presence of these contingency plans, according to the Mail article, shows that such is the reliance of government on outsourcing that some of these companies are considered too big to fail.
The GMB union told The Guardian that it estimates that Interserve had been awarded around £660 million in contracts during the past few months while the company struggled with mounting debt and going into administration was a possibility. In December 2018, Interserve announced that it needed another rescue package but in the same month was also awarded a £6 million government contract.
The run-up to the fall of Interserve has been likened to the collapse of Carillion, where the Government also continued to award the company contracts despite its well-known precarious financial position. The collapse of Carillion in 2018 cost the taxpayer around £150 million, with more than 1,700 employees made redundant. The company’s collapse has led to delays to major hospital construction projects, however Carillion was far less embedded in the NHS than Interserve.