Public Sector Industrial Complex vultures hover in anticipation of Tory victory‏

The Daily Telegraph reports that Carillion boss John McDonough is excited by prospect of spending cuts
http://www.telegraph.co.uk/finance/newsbysector/supportservices/7664241/Carillion-boss-excited-by-prospect-of-spending-cuts.html

His optimism is because Carillion – famed for its history in construction – is a leader in a growing number of businesses targeting support services work.

These companies – which also include Serco and Capita – are gradually assuming the day-to-day running of Britain.

Serco controls prisons and the Docklands Light Railway in London, while Carillion maintains military bases, telephone lines, and thousands of miles of roads.

With the political parties and local authorities gearing up for drastic cuts in response to Britain's £163m budget deficit, these companies are set to extend their reach on public life to an unprecedented level following the general election.

Research by the CBI estimates that new public sector contracts worth £30bn a year could emerge as authorities are forced to outsource services to cut costs. "If you have got to take whatever it is, £40bn a year out, you can't do that by tinkering around the edges," McDonough states. You've got to make real savings now and 2pc to 3pc is not in the game any longer."

One of the significant changes that spending cuts could lead to is local authorities seeking one company to deliver a wide range of services. McDonough refers to it as Carillion offering customers "the buffet" solution.

So, rather than a council searching for one contractor to maintain street lighting, one to do waste management, and another to maintain buildings, the services will be bundled up and offered as one. An early example could be the Ministry of Justice, which operates across courts, immigration centres and prisons in England and Wales. A bundling up of its services, worth £250m a year, is being considered, according to McDonough.

A private company taking such a grip on core parts of public life is unlikely to sit comfortably with everyone – another reason why perhaps politicians have not been keen to advertise the reality of post-election life to voters during the general election campaign.

However, McDonough, 58, passionately and enthusiastically believes the private sector can allow the state and local authorities to refocus on what is important – strategy and budget.

"You don't have to have the council person saying good morning as people walk into a building," he explains. "I think the ones [the council leaders] that are switched on are looking for local authorities to go to more of a commissioning role and outsource the doing."

Carillion already generates £2.5bn a year from UK support services and facilities management – more than any other company – specialising in what McDonough calls "big, ugly, difficult, transformational-type projects on a national scale". Its work includes catering, security, cleaning and, in particular, mechanical and electrical maintenance.

As well as managing the Deutsche Bank trading floor in London, where billions of pounds are traded every day, another high-profile private sector client is BT. Carillion has been awarded a £200m contract, previously in the hands of hundreds of contractors, to maintain the Openreach network across the UK, which takes communication cables from exchanges into homes and covers 120m miles of cable.

The savings for BT, according to McDonough, are "double digit".

"We have achieved in three or four months for BT a high transformation," he says. "You might say, well why didn't BT do it itself – no criticism of BT – but it's not core. These are not core business areas where senior management spend their time worrying, thinking, and knowing what good is. But it's what we do."

In the public sector, which accounts for 80pc of its work, Carillion focuses on driving efficiency through equipping workers, training them and treating them with "respect".

"Literally making sure they have the right technical equipment," McDonough says. "At a basic level, they have got the spade, the shovel, the pneumatic drills. If they are doing building maintenance they have got all their materials. It is incredible how many times people turn up and they don't have what they need. It is pretty basic stuff.

"We do NVQ training, we put all our people on, and we are very proud of it. Hospital cleaners get NVQs, they get nice uniforms, they get great equipment to clean the floors with, and guess what? They are valued, respected and they do a better job."

Why, if the solutions are that simple, can the public sector not just make these changes itself?

"I come from a manufacturing and service background, and I worked with the Japanese car manufacturers a huge amount of my time. Generally, I believe if you haven't improved something by 10pc, you haven't tried. I am a believer in double-digit productivity improvements, and doing things better is what challenges and brings innovation. To want to improve it by 1pc or 2pc is the typical public sector attitude. If you talk to them they think they have moved heaven and earth if they are reducing costs by 1pc or 2pc, because that's where they come from, they are RPI driven."

McDonough does not speak with disdain about the public sector and its operations – indeed, at one point, wary of the way he may be coming across, he stresses he does not believe "private sector good, public sector bad", pointing to efficient operations in the NHS, Highways Agency and even Network Rail – rather, he speaks as a man who has identified major opportunities where his company can excel.

"We've done these transformations and we know what good looks like," he says. "I mean our job is basically to pour the best practice from everywhere we have got into the new contract.

"Inherently, there is no reason why the public sector can't do it. This is not huge rocket science. But it's transformational, and it's doing it quickly."

The increasing involvement and influence of the private sector in the public world will be one of the legacies of the Blair and Brown governments.

The evolution of Carillion is a clear example of the growth. Not only was it an early pioneer of public private partnerships – it has raised £280m from selling stakes in completed projects – but its revenue from support services in the UK has surged from £0.4bn in 1999 to £2.5bn.

After being demerged from Tarmac in 1999, then seen as a leading construction group, McDonough sensed an opportunity for the business when he took control in 2001 following spells at Massey Ferguson and Johnson Controls.

The attraction was the longer-term visibility, better margins and better cash flow on offer from maintaining and providing services on construction and Public-Private projects, such as hospitals – once Carillion had finished constructing them.

Over the past nine years, Mowlem and Alfred McAlpine were acquired to build the support services arm, and UK construction has been downsized to a £1.8bn business playing a support role to the rest of Carillion.

McDonough insists the public should not fear the rise of support services companies. "Sustainability, caring for the general public, doing the right thing. Those sort of things are important to us," he states. "It's not because we are a bunch of do-gooders, it's because it makes absolute business sense."

Carillion has a long history of working with government agencies and on key infrastructure projects outside the UK too. In the Middle East, it has become established as one of the most prominent British businesses, working on the Grand Mosque in Oman, Dubai Festival City, and the iconic Yas Hotel at the Formula One track in Abu Dhabi. However, despite almost a decade in the job, McDonough is clearly invigorated by the new challenges ahead in the next few years. He is a fountain of stats, stressing that 70pc of local authority work is still sourced in the UK.

Even the growing prospect of a hung parliament cannot dampen his belief that a string of new opportunities are about to emerge: "I don't think it's going to happen on the 7th of May. I think the spending reviews will take a year-ish to really get into shape what the oursourcing should be. I think you will get some big headlines in the first 100 days of this cut, that cut, but they will be big programmes. I think the support services cuts, and outsourcing, will start second half of 2011, into 12 and 13," he says.

His forecasts mark a stark contrast to the silence from politicians on where cuts will fall. The reality is that the public sector faces major change. While more involvement from the private sector will feel uncomfortable for some, others believe that the public sector has become too large and believe the onus is on the private sector to drive the economy back to sustained growth. Carillion's slogan sums up where it stands on the debate: "Making tomorrow a better place