Deloitte to watch over Interserve for the UK Government

21 February 2018 3 min. read

The UK Government has enlisted professional services giant Deloitte to keep watch over troubled outsourcer Interserve. Following the high profile collapse of Carillion and a surprise profit warning from fellow contractors Capita in early 2018, authorities are keen to avert a similar crisis, as the UK outsourcing sector continues to flounder.

While the beginning of the year saw experts at Information Services Group predict a bumper year of 20% growth for outsourcing, amid a talent-shortage relating to Brexit uncertainty and digital disruption, the outsourcing sector has seen a tumultuous opening to 2018. The sector was rocked by the collapse of construction giant Carillion in January, while a later profit warning from Capita compounded this by hitting shares in other outsourcing companies. While Capita slumped by 43%, Serco also saw a 3.9% fall; alongside Kier (-1.3%), G4S (-1.1%) and Interserve (-1.9%). This was particularly unhelpful for the beleaguered Interserve, as the group was already grappling with poor trading and climbing costs. 

Deloitte to watch over Interserve for the UK Government

EY, PwC and Oliver Wyman were all tapped by either the multinational support services and construction company, or its lenders, late last year, as Interserve witnessed a dramatic slump in its share value in September. The UK-based firm previously boasted a revenue of £3.2 billion in 2015, and is presently home to a workforce of more than 80,000 people worldwide.

The UK Government has long used outsourcing as a technique to reduce spending on public services. However, the method has been seen as increasingly unsustainable in recent months, following the high profile capitulation of Carillion. The contractor issued three profit warnings of its own before its collapse. Yet, in spite of this, the group was still handed a number of lucrative roles in the public sector, preceding its eventual demise.

Similarly, Interserve was recently boosted by news that it had secured a five-year facilities management deal worth £227 million with the Department for Work and Pensions, while still holding a key contract to manage a defence training base on Salisbury Plain. However, should the group fall into liquidation as with Carillion, the Government faces a major political and economic crisis.

Interserve claimed in January that it had nipped is problems in the bud, and that its annual performance would be in line with the guidance issued in October. However, Interserve expects its net debt to spike to £513 million by the end of the year, due to its running of an experiment in waste management, prompting further concern from officials.

Now, in a bid to monitor the situation, the Government has drafted in Big Four firm Deloitte to watch over Interserve. The British press reported that Deloitte has been brought in by the Cabinet Office to advise on the governmental contracts held by the outsourcer.

A Government spokesperson said, “We regularly meet with all of our suppliers to ensure the efficient delivery of public services. We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”