‘Carillion’s “compulsory liquidation” proves it had already reached a point where there was nothing worth buying. All it had was its contracts, on which the margins were evidently too low to cover its ever-growing liabilities. There was no viable business to sell. There were no meaningful assets.’
Matthew Vincent in the Financial Times, 2018.
The strategic use of development finance for the mobilisation of additional commercial finance towards the Sustainable Development Goals (SDGs) in developing countries was prioritised by DFID in their 2017 Economic Development Strategy on prosperity, poverty and meeting global challenges.
Britain will establish new trade, investment and economic links, and end global poverty through the potential of new trade relationships, job creation, and the channelling of investment to the world’s poorest countries whilst recognising that no single government body has enough capital to do so and no private sector body will take responsibility for the risk inherent in doing business in fragile and complex states.
Using blended finance approaches in international development is not an inherently good or bad thing, but one that raises an important question.
How is multi-stakeholder dispute resolution over failure to deliver contracts going to be addressed when public and private sector institutions are used to deliver the sustainable development goals?
What is not clear is how the potential pitfalls of contractual liability will be addressed as blended finance continues to play a role over the next 5 - 10 years in addressing the SDGs.
If we look at the timeline and reach of DFID’s approach alone, there is one key feature that needs to be addressed to harness the potential of blended finance in addressing the SDGs; the effective dispute resolution of contractual failure to deliver.
In Africa, at least four groups of industries—consumer-facing industries, agriculture, resources, and infrastructure—together could generate as much as $2.6 trillion in revenue annually by 2020. That's a lot of money, a lot of industry, and a lot of risk held by public and private sector bodies working together to deliver SDGs to vulnerable communities.
Contracting can be a source of conflict or cooperation which makes timely, fair, and impartial solutions important to maintain the value of addressing the SDGs through blended finance and address legal issues surrounding public/private contracting for the delivery of key services in developing countries.
With the involvement of state institutions and private sector players, diplomacy and working together is key and it’s unlikely that issues, such as a failing to deliver on contracts, will be addressed in any courtroom. Presumably contractual issues will be settled as far from courts as possible, with a preference for arbitration instead of litigation.
Carillion is one example of an irresponsible financial model that is best kept on the shores of Britain, and not exported through development financing approaches.
As Grace Blakeley of IPPR writes, “The cabal of outsourcing firms like Carillion, Serco, and Capita don’t add any value to the economy. They merely act as arbiters between a Government that lacks the desire or capacity to do proper public procurement and the suppliers that end up doing the work, extracting millions from taxpayers in the process.”
What does this mean?
It means beginning to understand the role that contracts and conflict resolution will come to play in defining effective and peaceful global relations is important. It also means that ensuring developing countries don’t build and then collapse ‘Carillions’ through development financing is a priority.