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Carillion crash

John Bell

February 2, 2018

In October 2014 the business press reported: “Carillion Canada fined $900,000 for not properly clearing QEW during two storms.” What then seemed an isolated bit of corporate irresponsibility takes on a different character with today’s news that Carillion’s British parent company, a world leader in Public-Private Partnership (P3) deals, has gone bankrupt.

The crash of Carillion hasn’t made big news yet on this side of the Atlantic, but it could have a big impact on people across Canada in two senses.

First, if Carillion Canada goes under it could cost thousands of workers their livelihoods and pensions. Carillion had its fingers in a lot more than snow plowing.

Second, the crisis of Carillion—here and in Britain­—calls into question the free market logic which has held sway for decades. Cut red tape. Make government smaller. Public services are inherently inefficient, and private business can do it better and cheaper. At a time when governments in the provinces and nationally are touting the advantages of P3s and privatization more loudly than ever, the demise of Carillion runs directly counter to their arguments.

Carillion’s Ontario snow job

While the press reported Carillion’s fines back in 2014, I find no report they actually paid the $900,000. They were appealing the fine. I can tell you that a subsequent auditor’s report noted the Ontario Liberals forgive $4.8 million out of the $13.3 millions in fines it levied against unnamed private contractors in 2013/14.

I can tell you that the time it took to clear snow and ice doubled when the service privatized in 2009, from 2.1 hours to 4.7 hours according to Ontario’s auditor.

When at least one private contractor complained they didn’t have enough equipment to do the job, the province generously purchased plows and sanders for them.

The Liberal’s largesse was a surprise to Wayne Gates, then ONDP transportation critic: "If I was the government I would have made sure the companies had the equipment to perform the job. I'm actually surprised they don't have an out clause in their agreements so they can get out of them if the companies are not performing the work."

Carillion Canada had eight contracts to maintain highways in regions across southern Ontario, worth a total of $87 million annually.

Most of Carillion’s Canadian P3 projects are in the area of health care, building and managing hospitals in Ontario, Saskatchewan and Northwest Territories. Ontario readers may be familiar with Carillion through its role building and running operations like the P3 Brampton Civic Hospital.

Independent auditors found that cost over-runs and missed deadlines building the hospital cost taxpayers $200 million. And long after construction has been completed, cost over-runs continue. Carillion was granted an unbreakable 25-year contract to manage the hospital and deliver services like cleaning, food and maintenance.

Carillion is one of many corporations taking advantage of P3 deals in Canada. One of the biggest is SNC Lavalin. It would take more space than I have here to list the corruption and construction disasters at just one SNC Lavalin project–the mega-hospital at McGill University. Kickbacks, payoffs, criminal charges and massive design flaws aside, how’s this for an argument in favour of P3s: “Two days after SNC-Lavalin declared the drainage problems at the new Montreal Children’s Hospital were ‘largely under control,’ drains backed up in the birthing centre early Friday morning, flooding the clinical area with ‘diarrhea-like’ sewage water.”

The British case – the gospel of privatization

Ever since the days of Thatcher and Reagan, the cornerstone of what has come to be known as neoliberalism is the supposed superior efficiency of private ownership and management. The result is corporations like Carillion.

The fall of Carillion could directly affect over 20,000 workers. While it is doubtful they will recover much in the way of severance or pensions, at least they have legal claims. It is estimated that another 30,000 worked for Carillion as “self-employed” subcontractors, particularly in construction projects. Carillion took full advantage of the benefits to bosses in the “gig economy”. These people are left without any protection for unpaid wages or severance.

The Tory government of Theresa May claim they were blindsided by the bankruptcy. With so many built in advantages, who could have predicted the collapse of Carillion? Well, the capitalist speculators who run hedge funds have been quietly dumping their Carillion stocks for months.

“They have been too quick to book revenues upfront and they have slotted the costs in further down the line,” said Matthew Earl, founder of ShadowFall Capital & Research. “You can only do that for so long before it comes back to haunt you.”

Theresa May tried to paint the UK government as victim, rather than architect of the crisis, saying the government was “a customer of Carillion, not the manager of Carillion.” Anyone with any political memory know that is nonsense.

According to financial journalist Paul Mason: “Under neoliberalism, the role of the state is to continuously create opportunities for profit in the private sector by extending market forces into areas where they did not previously exist. In this sense, Carillion was not the product of entrepreneurship but of government policy.”

In the process, important services needed for the public good were taken out of the hands of elected officials–and at least nominally under public scrutiny–and given to managers who answer only to shareholders. Executive pays soar; a year before the crash, Carillion executive contracts were rewritten to give them protection for their bonuses in the event of bankruptcy. And when the crash comes, it is taxpayers who are left on the hook to salvage the projects and (hopefully) deliver the services.

These schemes have been around long enough for the facts to be known. Audits and comparisons between public and privately delivered serves has shown that private and P3 schemes are about 40% less efficient than public. Public services can deliver cheaper because a) government can borrow money to complete projects at lower rates, b) costs need only be raised enough to repay these more modest capital costs, and c) success is measured by timely delivery of services, not in delivering profits and dividends to shareholders.

Despite all evidence governments continue privatizing. Justin Trudeau and his brother in questionable ethics, Bill Morneau, want to put $28 billion worth of publicly held infrastructure on the table for their corporate supporters. They benefit, at least in the short term, from profits and from the illusion that government costs are coming down. We know, and Carillion’s crash proves, that eventually those costs will go up, and will get dumped on us in the form of declining quality, longer waits and user fees.

Seriously, isn’t some 30 years of bad investments, declining services and crumbling infrastructure enough to prove that we can do better? Time to renationalize services like rail, to revolutionize public transportation. Time to return all health services to the public realm along with real investment, instead of the slow death by a thousand cuts we have witnesses since the days of Chretien and Martin. And time to realize that it isn’t just this particular kind of neo-liberal capitalism that is a monumental failure, it is capitalism itself.



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