Carillion collapse exposed flaws in UK government policy - MPs

LONDON (Reuters) - The collapse of Carillion exposed the risks of using private companies to cut the cost of delivering public services and its failure could be repeated if the government does not learn lessons, lawmakers said on Monday.

Carillion, which employed 43,000 people to provide services in defence, education, health and transport, collapsed in January, becoming the largest construction bankruptcy in British history. It left creditors and the firm's pensioners facing steep losses and put thousands of jobs at risk.

A report published by a parliamentary committee on Monday said the government's overriding priority for outsourcing had been spending as little money as possible while forcing contractors to take unacceptable levels of financial risks.

It said the preoccupation with costs had hit the quality of public services because the outsourcing companies were sent a clear signal that cost, rather than quality, was the government's consistent priority.

Bernard Jenkin, chairman of the Public Administration and Constitutional Affairs Committee, said it was staggering that the government has attempted to push risks that it did not understand onto contractors.

"The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

"The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market."

Other parliamentary committees have already criticised the role Carillion's directors played in the collapse.

A spokesman for the Cabinet Office said that the government would respond formally to the report in due course.

"The government is committed to ensuring a healthy and diverse marketplace of companies bidding for government contracts, and we have recently announced a wide package of new measures to further improve how we work with our vendors," the Cabinet Office said in an emailed statement.

(Reporting by Paul Sandle. Editing by Jane Merriman)