159. In a letter to us, the Official Receiver explained that due to the speed of the final collapse of Carillion, he was unable to tender for the Special Managers he needed to support him. Instead, he made an immediate choice based on the criteria of "a firm that was not conflicted; which had sufficient resources to undertake this complex liquidation; and that had some existing knowledge of the Carillion group".465 It is difficult to envisage how a company might have knowledge of Carillion and not be conflicted. However, the Official Receiver decided, and the High Court concurred, that PwC best met these criteria. PwC had undertaken a range of work for, or relating to Carillion, in the decade leading up to its collapse.466 Most recently, it had supported the Cabinet Office in its cross-Government contingency planning for Carillion, up to and including advice on insolvency and the continuity of public services.467 David Kelly, one of the PwC Special Managers, told us that he believed Carillion's work preparing Government for Carillion's insolvency did not represent a conflict.468 This is questionable. But the requirement for "sufficient resources", which required large numbers of staff to start work on the insolvency within 12 hours of notification,469 limited the options to the Big Four accountancy firms.470 Despite PwC's extensive prior involvement in Carillion, given that KPMG was Carillion's external auditor, Deloitte its internal auditor and EY was responsible for its failed rescue plan, it was certainly credible for the Official Receiver to consider those other Big Four companies more conflicted. We consider competition and the Big Four in Chapter 3. In applying to the Court to appoint PwC as Special Managers to the insolvency, the Official Receiver was seeking to resource a liquidation of exceptional size and complexity as quickly and effectively as possible from an extremely limited pool.
160. The administrative costs of the liquidation, underwritten by the taxpayer, consist primarily of the work of the Official Receiver and his team, and of the Special Managers and other PwC staff that support them. In appointing the Special Managers, the High Court is also responsible for approving their remuneration by an application from the Official Receiver from time to time.471 In March 2018 we took evidence from one of the Special Managers, David Kelly, and sought an update on the costs, and potential costs to the taxpayer of PwC's work. Mr Kelly, who is charged out at £865 per hour, told us that the cost of his firm's first eight weeks of work would be £20.4 million.472 PwC's staff were working at an average hourly rate of £360 per hour, and they had 112 people working on Carillion in the week prior to their evidence. Mr Kelly was able to give no indication of the daily cost of the liquidation, no suggestion of the number of PwC staff that would be required even just a week into the future, and no estimate at all of what PwC's total fees would be at the conclusion of their work.473 Across their 15 to 16 workstreams, PwC were unable to suggest any performance indicators for their success, beyond the underpinning priority of the maintenance of critical Government services.474 While the Official Receiver and the High Court will be able to review and challenge PwC's fees,475 we heard little evidence of challenge or scrutiny of the work of the Special Managers to date. The PPF told us that under normal insolvency procedures, their role as an unsecured creditor-when a company collapses with a pension deficit they are often the largest-gives them rights, which they take-up, to scrutinise the work and fees of the administrators or liquidators. They have no formal role, however, in scrutinising the work of the Special Managers.476
161. We are concerned that the decision by the court not to set any clear remuneration terms for PwC's appointment as Special Managers, and the inability of the appointees to give any indication of the scale of the liquidation, displays a lack of oversight. We have seen no reliable estimates of the full administrative costs of the liquidation, and no evidence that Special Managers, the Official Receiver or the Government have made any attempt to calculate it. We have also seen no measures of success or accountability by which the Special Managers are being judged.
162. As advisors to Government and Carillion before its collapse, and as Special Managers after, PwC benefited regardless of the fate of the company. Without measurable targets and transparent costs, PwC are continuing to gain from Carillion, effectively writing their own pay cheque, without adequate scrutiny. When the Official Receiver requires the support of Special Managers, these companies must not be given a blank cheque. In the interests of taxpayers and creditors, the Insolvency Service should set and regularly review spending and performance criteria and provide full transparency on costs incurred and expected future expense.
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465 Letter from the Official Receiver to the Chairs, 5 February 2018
466 Letter from PwC to the Chairs, 2 February 2018
467 Q1329 [David Kelly]
468 Q1330 [David Kelly]
469 Q1332 [David Kelly]
470 PwC, KPMG, Deloitte and EY.
471 Letter from the Official Receiver to the Chairs, 5 February 2018
472 Q1333 and Q1367 [David Kelly]
473 Qq1332 - 65 [David Kelly]
474 Q1345 [David Kelly, Marissa Thomas]
475 As above.
476 Letter from PPF to the Chair, 20 February 2018