The Contractor Carousel: How Whitehall Keeps Rewarding Failure With Fresh Billions

On 15 January 2018, Carillion plc — at that point one of the largest government contractors in the United Kingdom, holding contracts worth approximately £1.7 billion with the public sector — collapsed into compulsory liquidation. It was the largest trading liquidation in British corporate history. The government was left to absorb costs running into hundreds of millions of pounds. Thousands of subcontractors, many of them small businesses, were left unpaid. Public sector projects from hospital construction to school maintenance ground to a halt.

The Public Accounts Committee described the episode as a story of recklessness, hubris, and greed. The joint inquiry by the Work and Pensions and Business committees was more direct still, concluding that Carillion's directors had presided over a sustained misrepresentation of the company's financial position while continuing to draw substantial salaries and dividends. Ministers were warned. The warnings were not acted upon. Contracts continued to be awarded.

That was seven years ago. The procurement system that produced Carillion has not been fundamentally reformed. The contractor carousel keeps turning.

The Architecture of Capture

To understand why government procurement keeps failing in the same ways, it is necessary to understand the structural incentives that govern it. Whitehall procurement is not a genuine competitive market. It is, in practice, a heavily filtered process in which the barriers to entry — the compliance requirements, the financial guarantees, the framework agreements, the pre-qualification hurdles — systematically favour large, established suppliers over smaller, more agile competitors.

The Crown Commercial Service, which manages central government procurement frameworks, was established precisely to introduce rigour and value for money into the process. In practice, it has become the institutional architecture through which incumbent suppliers maintain their dominance. A supplier already on a framework agreement has a structural advantage over any new entrant, regardless of relative capability or price competitiveness. Framework agreements, once awarded, tend to be renewed. Relationships, once established, tend to persist.

The result is a relatively small number of firms — Capita, Serco, G4S, Atos, Fujitsu, and a handful of others — that between them hold an extraordinary proportion of the government's outsourced contract portfolio. These firms are not consistently excellent. Their track records include failed IT systems, collapsed service contracts, and regulatory interventions. They are, however, consistently present. They know how to navigate the procurement process. They have the relationship capital. They have, in the language of Whitehall, the capacity to absorb large contracts — which is to say, they are too embedded to fail in a way that would be administratively inconvenient.

The Fujitsu Problem

No recent example illustrates the dysfunction more clearly than the government's continued relationship with Fujitsu in the wake of the Post Office Horizon scandal. The Horizon IT system, developed and maintained by Fujitsu, was at the centre of what Sir Wyn Williams's inquiry has described as one of the greatest miscarriages of justice in British legal history. Hundreds of sub-postmasters were wrongly prosecuted on the basis of data produced by a system that Fujitsu knew to be defective. The human cost — bankruptcies, suicides, destroyed families — is documented and appalling.

Fujitsu's response to the scandal, and the government's response to Fujitsu, has been instructive. The company expressed regret. There were no prosecutions of Fujitsu executives. And Fujitsu continued to hold significant government contracts. As of 2024, the company retained contracts across multiple government departments, including the Home Office and the Ministry of Justice. The Cabinet Office acknowledged that this situation was uncomfortable. It did not terminate the contracts.

The explanation offered — that terminating contracts mid-delivery would be costly and disruptive — is precisely the logic that sustains the contractor carousel in perpetuity. A supplier that knows it cannot be removed without significant administrative pain has no meaningful incentive to perform. The threat of competition is the only reliable guarantor of quality. When that threat is neutralised by switching costs and framework dependency, the leverage flows entirely to the supplier.

The Accountability Vacuum

One of the most politically convenient features of the outsourcing model, from a ministerial perspective, is the diffusion of accountability it produces. When a directly delivered public service fails, the minister responsible is clearly identifiable and politically exposed. When an outsourced service fails, responsibility is distributed across the contracting authority, the contract management team, the supplier, and, frequently, a sub-contractor chain that can be several layers deep.

Carillion's collapse illustrated this perfectly. Ministers insisted they had relied on the company's published accounts. The company's directors insisted they had been meeting contractual obligations. The auditors — KPMG — signed off accounts that the subsequent investigation found to be materially misleading. Nobody, ultimately, was held to account in any meaningful sense. The directors were disqualified from serving as company directors for periods ranging from six to fifteen years. No criminal charges were brought. No public money was recovered.

The Procurement Act 2023, passed under the previous government and brought into force in February 2024, introduced some improvements — including enhanced debarment provisions and greater transparency requirements. These are genuine, if modest, reforms. They do not address the fundamental problem, which is not the absence of rules but the absence of will to enforce them and the structural bias toward incumbency that operates before any formal procurement process begins.

What Competition Actually Requires

The most intellectually honest defence of the current system is that genuine competition for large government contracts is inherently difficult to achieve. Complex, long-duration contracts — building and maintaining a hospital, running a national IT system, managing a prison — require suppliers with significant financial capacity, operational scale, and institutional knowledge. The pool of credible bidders is, by necessity, limited.

This is a real constraint, and it should be taken seriously. But it does not justify the current arrangements. It argues, instead, for a different procurement philosophy: one that deliberately invests in building supplier capacity outside the existing carousel, that disaggregates large contracts to enable smaller providers to compete for components, that imposes genuine financial penalties — not merely contract termination — for underperformance, and that requires senior officials to certify personally that they have considered the track record of incumbent suppliers before awarding new contracts.

It also argues for genuine transparency. The National Audit Office has repeatedly found that contract management data across government is inadequate — that departments do not systematically track supplier performance across contracts, cannot readily identify which suppliers have failed on previous engagements, and lack the institutional memory to make genuinely informed procurement decisions. This is not a technology problem. It is a political problem. The information exists. The will to use it is absent.

The Taxpayer's Interest

Conservative economic philosophy is grounded in a straightforward proposition: markets, when they function properly, allocate resources more efficiently than central planning. Public procurement that is captured by incumbents, insulated from genuine competition, and structured to protect established suppliers from accountability is not a market. It is a patronage system with a competitive veneer.

The fiscal cost is substantial. The National Audit Office has identified billions of pounds in value lost through poor contract management, inadequate competition, and supplier failure over the past decade. The opportunity cost — the public services that could have been delivered, the infrastructure that could have been built — is larger still. And the political cost, in terms of public trust in the government's ability to spend money competently, is perhaps largest of all.

The Procurement Act was a step. It was not a reckoning. Until Whitehall is prepared to end the carousel — to debar failing suppliers, to disaggregate contracts, to build genuine competition rather than simulate it — the pattern will repeat. The names may change. The outcomes will not.

A government that keeps awarding contracts to firms that have already failed the public is not managing risk — it is socialising it, and the taxpayer always ends up holding the bill.