Interserve: UK outsourcing giant loses rescue vote

A cleaner at Liverpool Street stationImage copyright Creative Commons
Image caption Interserve has a cleaning contract for Network Rail stations

One of Britain’s biggest government contractors, Interserve, is due to file for administration late on Friday after shareholders rejected a rescue deal.

But under a pre-arranged agreement, Interserve would immediately be taken over by its lenders, a plan which it said would protect services and jobs.

Interserve has 45,000 UK staff, and 65,000 globally.

It cleans schools and hospitals, runs catering and probation services, and manages construction projects.

On Friday, shareholders voted 59.38% against a rescue plan to address Interserve’s mounting debt pile. The plan would have seen their stake reduced to just 5%, with lenders being handed the lion’s share of the business.

Interserve said that “in the absence of any viable alternative” rescue plan it would formally apply to the High Court to go into administration.

Accountants EY have already been lined up as administrators.

EY is expected to carry out a so-called pre-pack administration, an insolvency procedure under which a company arranges to sell its assets to a buyer before administrators are appointed.

This means Interserve can avoid a Carillion-style collapse.

Interserve’s lenders including banks RBS and HSBC, and investors Emerald Asset Management and Davidson Kempner Capital, are expected to take control once the process is complete.

The company accumulated debt after construction project delays and a failed energy-from-waste project in Derby and Glasgow.

Concern for jobs

The GMB union said Interserve’s problems, which come after the failure of Carillion last year, showed it was “time to turn the tide on the disastrous experiment” of outsourcing public services.

Kevin Brandstatter, the union’s national officer, said: “Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.

“Shambolic mismanagement is putting jobs put on the line and services in jeopardy. Our public services can’t go on like this.”

Although Interserve’s contracts are expected to continue, there is still concern for jobs in the supply chain.

The National Federation of Builders (NFB) said there would be thousands of workers wondering whether they still have a job, and called for changes in the way the government hands out contracts to big national companies.

Richard Beresford, chief executive of the NFB, said it was time to reform “the procurement process from its foundations to ensure that more regional contractors can compete and win work”.

In addition to helping smaller companies, it would “spread risk across fiscally responsible businesses who reinvest profits and are not bound by shareholders,” he said.

The Cabinet Office insisted that Friday’s news would not affect jobs or the provision of public services. “We are in close contact with the company and we are confident a positive way forward will be found,” the office said in a Tweet.

What is Interserve?

The outsourcing firm is one of the UK’s largest public services providers. The firm started in dredging and construction, and from there has diversified into a wide range of services, such as healthcare and catering, for clients in government and industry.

It sells services, including probation, cleaning and healthcare, and is involved in construction projects.

Interserve is the largest provider of probation services in England and Wales, supervising about 40,000 “medium-low risk offenders” for the Ministry of Justice.

Its infrastructure projects include improving the M5’s Junction 6 near Worcester, refurbishing the Rotherham Interchange bus station in Yorkshire, and upgrading sewers and water pipes for Northumbrian Water.

Hospital contracts include a a £35m contract at King George Hospital in east London for cleaning, security, meals, waste management and maintenance.

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