The Collapse of Carillion: Regulatory Failure in the Contract State

AuthorKaren Wong
Pages104-121
104 The Collapse of Carillion: Regulatory Failure in the Contract State Vol. 4
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The Collapse of Carillion: Regulatory Failure in the
Contract State
Karen Wong*
ABSTRACT
The rise of the contract state in the UK heralded an era of harnessing the private sector for
public purposes. However, the collapse of Carillion, one of the largest contractors with the UK
public sector, in 2018 epitomises its failure. Focusing on ex-ante regulatory failure, this essay
analyses Carillion’s collapse from three perspectives: contract formation in tendering shows that
inherent relationality in contracting may lead to an undesirable use of discretion, ye t current
hard and soft law are unable to structure and confine such discretion; Carillion as a Strategic
Supplier shows that the Cabinet Office’s design of said programme may fail to monitor
participating companies; the management of individual contracts shows both government and
companies may be stuck within ‘deal-making’ and fail to manage risks beyond the contract. It
is argued that these perspectives indicate medium to long-term regulatory and institutional
failure in government policy-making and enforcement, as well as concerning flaws in Carillion’s
self-regulation. The sufficiency of ex-post accountability from the executive and legislature is
then considered, with Parliament more likely to bring Carillion to account despite the executive
often acting as the contractual party. Recommendations are offered, including a public law
framework for contracts and common ethical standards.
INTRODUCTION
The rise of the contract state from Margaret Thatcher’s ‘New Right’
government in the 1980s heralded an era of contracting out the delivery of public
services. There was the extensive use of market relations, along with market-
mimicking techniques such as privatisation and quasi-privatisation.2 Such
techniques aimed to harness the private sector for public purposes by raising the
* LLB (LSE) ’19.
2 Christopher Hood, 'A public management for all seasons' (1991) 69 Pub Admin 3.
2019 LSE LAW REVIEW 105
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level of competition and br inging in resources and expertise from the private
sector. A ‘contract culture’ hence emerged, denoting the shift to an administrative
model mirroring private-sector management, where the relationship between
government and private bodies is structured through contracts as opposed to
regulations3. However, there were also those who foresaw the failure of this
seemingly all-pervasive culture. Potential problems include the corrosion of
‘voluntary sector values’ such as the provision of socially-beneficial services for
non-financial gain, as well as declining service quality and excessive complexity
due to increased bureaucracy and legalism.4 The collapse of Carillion in 2018, one
of the largest contractors with the UK public sector, epitomises such failure.
There is an urgent need to evaluate to what extent Carillion’s problems
arose particularly to its context or are due to inherent flaws of ‘contracting out’.
This is mainly due to the ‘pyramids’5 and ‘cascades’6 of contract still embedded in
the current public/private landscape, with systemic contractual governance at
both macro- and micro-levels, spanning from government department s and
agencies to private contractors and subcontractors. Given this high level of
interconnectivity, Carillion’s collapse may have knock-on effects or highlight
potential problems with similar contracting processes and contr acts concluded
with other companies, hence timely analysis is needed to prevent further failures.
Focusing on ex-ante regulatory failure, this essay offers analysis on the
failure of Carillion from three perspectives: contract formation in tendering shows
that inherent relationality in contracting may lead to an undesirable use of
discretion, yet current hard and soft law are unable to structure and confine such
discretion; Carillion as a Strategic Supplier shows that the Cabinet Office’s design
of said programme may fail to monitor participating companies; the management
of individual contracts shows both government and companies m ay be stuck
within ‘deal-making’ and hence fail to manage risks beyond the contract. It is
argued that these perspectives indicate medium to long-term regulatory and
3 C Harlow and R Rawlings, Law and Administration (3rd edn, CUP 2009) 57.
4 K Walsh (et al), Contracting for Change (OUP 1997) 1.
5 M Freedland and D King, 'Contractual governance and illiberal contracts: Some
problems of contractualism as an instrument of behaviour management by agencies of
government' (2003) 27 Camb J Econ 465.
6 J Boston, 'The use of contracting in the public sector: Recent N ew Zealand
experience' (1996) 55 AJPA 105.

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