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Carillion Liquidation: What does it Mean for School Catering?

Carillion LiquidationIn January, Carillion, a construction company that services multiple schools for cafeteria food, filed for liquidation. This could have far reaching impacts on the quality of foods that students receive, and could spell disastrous news for U.K investors seeking to break into the catering market. While there is a current effort by the government to maintain the company’s Food & More branch (which was the main vessel by which food was catered to schoolchildren). So what does this mean for the educational sector? What does it mean for the government? Perhaps most importantly: what does it mean for private sector contracts in public sector positions in the U.K with specific respect to school contract catering?

To answer any of these questions, we must first discover how the company collapsed in the first place. According to the BBC, some market analysts believe that Carillion overreached itself, accidentally placing its foot into more markets than it could handle. While this is entirely possible given how many sectors the company contracted itself out to, another strong reason that the company collapsed would be its borrowing deficit. In 2017, the company’s borrowing habits grew more and more numerous. Various setbacks on important construction projects as well as a massive penalty on a pollution charge set this back. So, in essence, we can look to what happened with Carillion on multiple fronts. The company was over-extended into too many markets. In turn, the company was facing several economic setbacks that were not analyzed appropriately that ended up affecting all branches of their contracts. As a result, the company was taking massive loans while sending out important contracts.

The contract catering industry must understand that with the collapse of Carillion, people may be more wary of companies that exhibit features displayed by Carillion. Also, those in the government sector seeking to hire catering companies might fall for the same trap as what occurred with Carillion, leading to disastrous effects to the education system and the economy, much like this instance. Any of the three postulated reasons for collapse stated above could spell doom. Why is that? One might believe that these issues are specifically isolated to Carillion, or, if they are in the catering business, believe that these issues, if they are facing them, will not lead to collapse. Here’s what’s likely given the climate at this moment.

Any public sector officials seeking a company who will issue contracts for public services should be searching for companies that are actually smaller than Carillion. Not larger. Size is not all that matters in a school catering contract. Smaller sizes generally mean higher prices, something the public sector rightfully seeks to avoid. But the issue with a company as extended into so many directions like Carillion, is that when a company takes a hit in one contract sector, the shock-wave could extend into another sector they are hiring people into.

It also should be obvious that being in debt is not somewhere you want to be. Companies that are in debt to one company while working for another have a hard time keeping their finances together. The issue that ensues in the school contract catering industry is related to quantity and quality, and the reliability of work.

The U.K government is taking steps to learn from this disaster. An inquiry has been ordered. This stands in contrast to some people in the U.K government who believe that the long-standing policy of having public sector needs be met by private contractors to be dead and gone. Nevertheless, according to the BBC, the government is subsidizing backers of Carillion contract loans. The government is also, as stated above, maintaining funds for the Food & More contractor. This seems to be an attempt to gain control over the situation and stabilize it before someone else will step up to the plate of contracting these companies. It is essentially in a deadlocked state with Food & More being kept on life support until then. It is highly unlikely that private finance initiatives and public sector contracts will go away. The Conservative Party will clash with Labour. Perhaps Labour will make some push to get private sector and public sector in separate courts, but Conservatives will still maintain that it won’t be possible to replace contractors for services pertaining to public school contract catering.

It is unclear as to whether another company will step up to the plate. What is clear is that nobody in the government wants to continue to pay for 218 schools’ meal services out of their own pocket. Students’ and parents’ reactions are unclear as well. It remains to be seen whether there will be some dip in food quality or perhaps even a rise. They remain in a purgatorial state until another company will get contract branches out to these schools. For any companies that are wealthy enough and centralized and stable enough to break into the market, the lucrative financial opportunity is there, even if the nature of the beast is slightly politicized in the current climate.

With lessons learned from Carillion’s collapse, perhaps a phoenix can rise from these proverbial ashes and breath new life into these schools’ cafeteria food. It is also unclear as to just how competitive that spot will be within the next few months. Perhaps after the inquiry into the collapse is finished, the public sector hiring groups will find out what exactly it is they’re looking for out of any given potential candidate. It seems clear right now that people are trying to focus on what not to do in light of this complex situation and are waiting to see how they can stabilize the current crisis before any new progress can be made in the school
contract catering industry. In the meantime, companies, government officials, and even the county councils must keep their eyes peeled for the next event that will come out of the Carillion collapse- and what it will mean for schools and contractors- in the coming months.