Interserve (Possible financial difficulties)

[Ken H]

There are reports online that they are in deep financial trouble
for example - https://mobile.reuters.com/article/amp/idUSKBN1O80S7

Do they have any railway involvement?

carillion going bust affected the railway badly. could Interserve failure do the same?

 

[Starmill]

I am fairly sure they are involved - at least as contract cleaners. It seems unlikely the end of those contracts could go as badly as Carillion's end did.

 

[Mag_seven]

Reports they are in deep trouble

Do they have any railway involvement?

carillion going bust affected the railway badly. could Interserve failure do the same?

According to the RMT:

Interserve hold a number of contracts in our industry, including major station facilities management work on Network Rail in the south

Of course Mr Cash can't resist the temptation to bring some more hyperbole into the press release - note use of the term "bandit capitalism".

‎

Once again we see the reality of bandit capitalism and its toxic impact on our public services.

https://www.rmt.org.uk/news/bring-interserve-rail-contracts-in-house/

 

[Dave1987]

How can a company with the kinds of contracts they have possibly be in trouble? Clearly these companies are very very badly run. When you have contracts where you have no worries about not being paid how can you be in financial trouble.

 

[Muenchener]

How can a company with the kinds of contracts they have possibly be in trouble? Clearly these companies are very very badly run. When you have contracts where you have no worries about not being paid how can you be in financial trouble.

Top dollar price paid for debt re-structuring I believe...

 

[Antman]

Overoptimistic modelling
Lack of info provided during procurement (really common)
Lack of cost savings able to be achieved
Inability to staff without expensive agency
Poor internal management
Knock on delays caused by third parties
It is rather difficult to get contract changes/contract variations for mis/disinformation during procurement so boards always decide to take the risk (most procurement teams are incentivised on contract wins, not quality of contract win, ludicrous as it sounds)

 

[WatcherZero]

Also the contracts typically require a lot of up front capital investment in equipment and recruitment/training that takes time to recoup and these kind of companies to have a habit of buying up existing contract holders to grow quickly, which again adds more debt.

 

[ainsworth74]

Maybe we should stop outsourcing everything...

 

[Hadders]

These sort of contracts are usually very people intensive (e.g. cleaning, catering). The cost of employing these staff is rising massively due to increases in the National Living Wage. The organisations these companies are contracted to want to reduce their costs, not increase them. Of course there are other issues as well but this is the root cause.

 

[Ken H]

Maybe we should stop outsourcing everything...

cheap init

 

[Meole]

Advance payments on public contracts would help.

 

[Baxenden Bank]

Maybe we should stop outsourcing everything...

Indeed.

And/or there should be greater control over debts that companies load themselves with. No different than on a personal or governmental basis.

Peering into my crystal ball. Yet again the suppliers and sub-contractors will get shafted, HMRC and the Pension Protection fund will take a hit. The only people to come out with still bulging wallets will be the bosses.

As with Carrillion, how much of the debt is real borrowing, and how much is clever accounting: group companies borrowing from another subsidiary to create tax advantages or to fund bonuses paid for on the never never of future income streams, which subsequently turn out to be fresh-water springs rather than Nile rivers.

 

[kevconnor]

Advance payments on public contracts would help.

Depends really, it can be a double edge sword. Advance payments is good for the outsource provider as it supports with upfront cash flow. It requires trust in the provider that they have good finance and risk management. In the current climate such trust may be hard to come by.

Also, It puts additional risk onto the contracting party, if the provider goes bust they will have to pay again to someone else to provide the service.

 

[Baxenden Bank]

Advance payments on public contracts would help.

Help whom?
To further stuff the pockets of companies prior to them going bust and enable them to pre-pack and walk away with even greater liabilities passed onto others?

 

[Dave1987]

Maybe we should stop outsourcing everything...

But we are told that the private sector is highly efficient and cost effective and the public sector is inefficient blah blah blah. Yet that’s now two massive private sector companies with numerous public sector contracts that have gone bust or in serious trouble. Think this will put another nail in the coffin of the notion that the private sector is always best......

 

[Antman]

It is also a way to get the staff off the public sector wage bill. Then the private company does the dirty work. There is bad outsourcing. And some good. Let's be frank. Some private sector management is appalling. Some public sector management is also appalling. And many are great and look after their staff. What I don't like, as a private sector careerist, is the relative lack of moral hazard. The same people pop up again and again: see Carillion management for starters. I feel desperately sorry for the poor sods who TUPE'd in to them and the subcontractors who are now running a real risk on getting money out for Christmas. Ialso have no doubt the existing management team will have massive golden parachutes (minimum 12months and deemed bonuses because the coterie will want to manage them out on terms the people doing the management will want for themselves when their time comes).

 

[Ken H]

It is also a way to get the staff off the public sector wage bill. Then the private company does the dirty work. There is bad outsourcing. And some good. Let's be frank. Some private sector management is appalling. Some public sector management is also appalling. And many are great and look after their staff. What I don't like, as a private sector careerist, is the relative lack of moral hazard. The same people pop up again and again: see Carillion management for starters. I feel desperately sorry for the poor sods who TUPE'd in to them and the subcontractors who are now running a real risk on getting money out for Christmas. Ialso have no doubt the existing management team will have massive golden parachutes (minimum 12months and deemed bonuses because the coterie will want to manage them out on terms the people doing the management will want for themselves when their time comes).

before you let a big contract you do due diligence on the supplier or customer make sure they have the resources and capital to fulfil the contract. And keep doing that.
I know an agency that supplied staff to the Woolworth group. The factoring company kept tabs on the group, then found the finances to be unsustainable and pulled the rug. 6 weeks later Wollies west bust. Someone knows how to protect their business. Looks like the public sector doesnt.

 

[WatcherZero]

But we are told that the private sector is highly efficient and cost effective and the public sector is inefficient blah blah blah. Yet that’s now two massive private sector companies with numerous public sector contracts that have gone bust or in serious trouble. Think this will put another nail in the coffin of the notion that the private sector is always best......

If its doing it cheaper than the public sector, and absorbing the risk that would otherwise be carried by the public sector, then how is it not beneficial?
The whole point of outsourcing is getting more return for lower cost.

To allude to Voltaires famous observation.

"From time to time the British need to execute an admiral in order to encourage the others"

 

[gswindale]

If its doing it cheaper than the public sector, and absorbing the risk that would otherwise be carried by the public sector, then how is it not beneficial?
The whole point of outsourcing is getting more return for lower cost.

Indeed.

My business provides services to various public sector bodies. We provide an entire team of high quality staff servicing our clients and charge each client less than the cost of a single person's salary for the client.

The problem arises when some non-commercially minded public sector chief gets involved and wants things done their way and ends up depicting us as stupid and the bad guys.

 

[Antman]

I used to get brought in when the public sector said, great you've done a good job for three years, now we are reprocuring it. We want more services for less money. No RPI, a gainshare in savings and you take all the risk. Price won't win alone, it's all about quality. By the way 50% of the scoring is on price. They never awarded to anyone who didn't bid the lowest. Inevitably, they had had in some management consultants telling them they can save them millions. On some nutty eat what you kill remuneration. Who then ran off the second it was procured. Leaving us to find ways to get our margin back. And dealing with commercially inexperienced management.

 

[Carlisle]

If its doing it cheaper than the public sector, and absorbing the risk that would otherwise be carried by the public sector, then how is it not beneficial?
The whole point of outsourcing is getting more return for lower cost.

All very well in theory if you can actually avoid creating what amounts to a two tier workforce in the process, within a society that appears divided and polarised enough allready.
I suspect a major factor behind ongoing support for the RMT DOO strikes will be scare stories doing the rounds that staff could eventually end up TUPED across to one of these outfits.even if they don’t turn out to be true .

 

[Meerkat]

Isn’t this like VTEC going pop - the shareholders/bond holders have effectively subsidised the provision of public services by ballsing their bid up?

Mick Cash can’t have it both ways - it can’t be bad for private suppliers to go bust AND private companies to be taking too much money out for no risk.......

 

[Dave1987]

All very well in theory if you can actually avoid creating what amounts to a two tier workforce in the process, within a society that appears divided and polarised enough allready.
I suspect a major factor behind ongoing support for the RMT DOO strikes will be scare stories doing the rounds that staff could eventually end up TUPED across to one of these outfits.even if they don’t turn out to be true .

Indeed I actually agree with you on something we see it all over the place on the railway. Many many roles have been outsourced to outfits like this. Senior management balls things up and then get to walk away with golden handshakes while the mere mortals at the bottom of the food chain are left with shattered pension options and no idea where the next pay packet is coming from. Stuff like this plays on people’s fears about the private sector, the lack of job security and vulnerability to suffering at the hands of bad management.

 

[AntoniC]

You need to remember that according to public opinion (and the Govt) Private Sector is good because its cheaper than the Public Sector, because those Private Sector employees can be paid less and dismissed quicker (unless your senior management) than those highly paid Public Sector employees (like me !).
As far as the Govt are concerned if your not directly employed , you dont appear on the payroll and therefore headcount is going down.

 

[Ken H]

You need to remember that according to public opinion (and the Govt) Private Sector is good because its cheaper than the Public Sector, because those Private Sector employees can be paid less and dismissed quicker (unless your senior management) than those highly paid Public Sector employees (like me !).
As far as the Govt are concerned if your not directly employed , you dont appear on the payroll and therefore headcount is going down.

If you take cleaning. to a hospital or network rail, cleaning is not their core activity. so getting in a specialist to clean makes sense. you dont have to spend management time micro managing cleaners, you get on with running the railway. you just spend a little time monitoring the contract and its delivery.

 

[Dave1987]

If you take cleaning. to a hospital or network rail, cleaning is not their core activity. so getting in a specialist to clean makes sense. you dont have to spend management time micro managing cleaners, you get on with running the railway. you just spend a little time monitoring the contract and its delivery.

Rubbish, outsourcing is used even for a departments/companies 'speciality'. Virtually everything is contracted out. There are many many examples where work is then sub-contracted out again. I've seen roles within TOC's go from in house to contracted out and then return in house again. So to claim outsourcing is purely used for work that is none core activity is complete nonsense!

 

[gswindale]

Rubbish, outsourcing is used even for a departments/companies 'speciality'. Virtually everything is contracted out. There are many many examples where work is then sub-contracted out again. I've seen roles within TOC's go from in house to contracted out and then return in house again. So to claim outsourcing is purely used for work that is none core activity is complete nonsense!

I've read the post you've quoted several times and can't see where that particular claim has been made.

Outsourcing, if done sensibly, is good - see the example in your quoted post. The company requiring the service just employs a specialist cleaning co (example). If cleaners leave, no recruitment costs for the company - it is down to the contractor.

I can't comment on specifics of TOCs, but working in property and the number of large corporations who don't understand their financial obligations under their leases and insist on daft things like a PO and 90 day payment terms for paying any invoice is somewhat surprising.

If you're renting office space where you're paying a service charge alongside your rent, you'll also be keen for the building management to be outsourced as with a 3rd party agent, the costs should be more transparent and represent value for money for the occupiers than they likely would be if managed in house.

 

[Dave1987]

I've read the post you've quoted several times and can't see where that particular claim has been made.

Outsourcing, if done sensibly, is good - see the example in your quoted post. The company requiring the service just employs a specialist cleaning co (example). If cleaners leave, no recruitment costs for the company - it is down to the contractor.

I can't comment on specifics of TOCs, but working in property and the number of large corporations who don't understand their financial obligations under their leases and insist on daft things like a PO and 90 day payment terms for paying any invoice is somewhat surprising.

If you're renting office space where you're paying a service charge alongside your rent, you'll also be keen for the building management to be outsourced as with a 3rd party agent, the costs should be more transparent and represent value for money for the occupiers than they likely would be if managed in house.

Yes heard it all before. Private sector is fantastic, efficient, innovative etc etc.... Then I read about big companies going bust or in serious trouble because of incompetent management. And the people at the bottom are the ones who suffer the most. In another thread we keep getting told that the private sector is not the wild west that it's made out to be and that railway workers should not be scared of the private sector. Yet clearly, this being the second big company with large Government contracts the private sector, people's fears about the private sector are somewhat justified. Much like Carillion bosses prioritised dividend payouts over paying into pensions schemes in the months leading up to its collapse. These kind of businesses don't deserve Government contracts, especially when some blame having to pay somewhat decent wages to their lowest paid staff as the reason for their issues.

 

[AndrewP]

There have been some good comments here and as someone who has been involved with a lot of outsourcing there are typically only 3 reasons why an outsource would fail:

• Poor procurement
• Poor bidding
• Poor management

Get these right and it should work. However, many times the subtleties of each are not correctly considered and you find

• A bid submitted on a win at all costs basis so the Business Development Director hits a target and gets their bonus
• A procurement team too week to reject a price that is too low to be sustainable
• A contract management team set up to deliver and not manage delivery (they are very different things)

With regards to in-house delivery there is no reason why this can't work well but it must be able to demonstrate value and quality i.e. Against measurable targets just as a good external service provider would have to do and there be consequences for failure i.e. Staff who don't deliver are sacked if unfortunately necessary. If this can be done why would you outsource apart from those tasks so specialist that no one would do them themselves.

Outsourcing is a complex area oversimplified by many including some involved in it.

 

[Ken H]

There have been some good comments here and as someone who has been involved with a lot of outsourcing there are typically only 3 reasons why an outsource would fail:

• Poor procurement
• Poor bidding
• Poor management

Get these right and it should work. However, many times the subtleties of each are not correctly considered and you find

• A bid submitted on a win at all costs basis so the Business Development Director hits a target and gets their bonus
• A procurement team too week to reject a price that is too low to be sustainable
• A contract management team set up to deliver and not manage delivery (they are very different things)

With regards to in-house delivery there is no reason why this can't work well but it must be able to demonstrate value and quality i.e. Against measurable targets just as a good external service provider would have to do and there be consequences for failure i.e. Staff who don't deliver are sacked if unfortunately necessary. If this can be done why would you outsource apart from those tasks so specialist that no one would do them themselves.

Outsourcing is a complex area oversimplified by many including some involved in it.

but outsourcing can give economies of scale

for instance outsourcing catering to someone like Sodexho means you get the menefit of their huge buying power to get bulk order discount for supplies. But you have to specify the quality of the stuff they supply. When I was in hospital the outsourced food was crap - because the specification when the contract was let was crap, i assume.