PwC probed on Carillion fees and conflicts

PwC advised Carillion’s directors on pensions from 2012 to 2017, and most of the Pensions Regulator's negotiations with Carillion were conducted via the so-called big four professional services firm. PwC then became advisers to the trustees of Carillion's schemes in autumn 2017, and was also advising the government on its dealings with the company.

They’re certainly expert in ensuring they get their cut at every stage

Frank Field, Work and Pensions Committee

Under its current role, PwC is acting as the special manager to the government’s official receiver, with the responsibility of recovering some funds for the Pension Protection Fund.

PwC probed on safeguards used to avoid conflicts

Members of the Business, Energy and Industrial Strategy Committee and the Work and Pensions Committee interrogated PwC partners on Wednesday, starting by asking what PwC did to avoid potential conflicts of interest.

Referring to PwC having worked with Carillion, before moving over to work on the behalf of its trustees, and then being appointed to work as special manager, Conservative MP Heidi Allen, a member of the WPC, said: “To the outside world, that would look like a massive conflict of interest.”

She asked PwC to discuss any safeguards they put in place to ensure that there were no conflicts of interest.

Marissa Thomas, a partner and head of deals at PwC, said that when the business takes on new clients and new roles, they look to the Institute of Chartered Accountants in England and Wales' code of ethics, which “tells us [that] where we are acting for more than one client in one situation, we need to consider if we can continue to act and protect our principles as accountants” in terms of objectivity and confidentiality of data.

In these situations, Thomas cited that PwC looks to put safeguards in place, including physical separation of teams and additional measures to protect the data used. 

Allen asked if PwC could honestly say that, whenever a different department of the organisation was pitching for the various bits of the business, there were no internal conversations, and "no using knowledge" that PwC had already acquired from previous roles. "Where are the Chinese walls there?", she asked.

Thomas said a central governance team ensures ethical codes are adhered to, and “in terms of using client data we may have from different assignments, where we have full permission from clients to do that, we will use the data, where we don’t have permission, we don’t”.

Prior to the hearing, Frank Field, chair of the WPC, said: “PwC had every incentive to milk the Carillion cow dry. Then, when Carillion finally collapsed, PwC adroitly re-emerged as butcher, packaging up joints of the fallen beast to be flogged off. For this they are handsomely rewarded by the taxpayer.”

He added: “They’re certainly expert in ensuring they get their cut at every stage”.

MPs push for total cost estimate

The committees also probed PwC on fees in terms of the work it is doing on behalf of the official receiver regarding the Carillion insolvency.

David Kelly, partner and special manager, stressed that “this is the largest case of its kind, there has never been a compulsory liquidation of this size” and “we were given 12 hours notification … that we were to be appointed as special managers to support the official receiver to deliver those essential public services”.

He told the committees that the eight weeks of work that PwC has done so far will cost £20.4m in fees.

He could not give an estimate of how much it will cost in total by the end of the process, despite MPs pushing for answer. 

McVey offers no categorical answers

As part of Wednesday’s hearing, work and pensions secretary Esther McVey made her first appearance before the WPC to discuss some of the proposals in the Department for Work and Pensions’ recently published defined benefit white paper.

If proposals mentioned in the white paper had been implemented, “to what extent would Carillion not have occurred on the pension side?”, asked Field.

McVey responded by saying that “no one can sit here and categorically state what would or would not have happened with Carillion”.

However, she stressed that bringing the white paper forward means that, “should anybody do anything to weaken or recklessly put their pension scheme into difficulties, then those people will get either penalties or... a criminal sanction”.

“This is about strengthening the regulator, it is about giving them powers to investigate more, it is about putting them on front foot and also being able to enforce a funding standard,” McVey added.

In response to a question from Field about whether the criminal sanctions mentioned in the paper could apply to Carillion, McVevy said that “once we understand what’s gone on” the regulator “could be using their anti-avoidance measures – as you saw with [BHS], it went sort of retrospectively”.

Charlotte Clark, director, private pensions and arm's length bodies at the DWP, told the committees that “we probably have 10 different cases that we’re discussing” with the regulator.