Interserve fights to keep contracts as rivals circle

The outsourcing firm Interserve is hoping to prevent a client exodus as rivals seek to cherry-pick parts of the business, which was bought out of administration by its lenders last week.

The government contractor, which employs 45,000 people in the UK and manages crucial public services such as hospital cleaning and parts of the probation service, is already fending off interest in lucrative contracts from peers including Mitie and Serco.

It is also facing the risk that clients spooked by its financial woes could exercise exit clauses triggered by the administration, despite the firm’s whirlwind resurrection via a “pre-pack” process wrapped up within a few hours on Friday.

One well-placed source told the Guardian that one travel agent client had transferred business to a rival last Friday, while others have moved across in the past few months.

A second source from within the company said it had recently performed a review to assess which contracts were at risk. “In some instances they [clients] have that right and there’s not much you can do,” the source said.

The source said clients in Interserve’s struggling construction business were likely to be disgruntled by the loss of financial guarantees previously provided by its now-defunct parent company.

“One of the things the lenders might hope to do is walk away from a lot of those parent company guarantees,” said the source. “That customer might never want to work with Interserve again.”

The insider said any clients denied a replacement parent company guarantee might use Interserve’s administration as a trigger to exit the contract, rather than rely on a guarantee from the construction unit alone. The division houses the firm’s disastrous energy-from-waste business and is in poor financial health.

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A spokesman for Interserve said it would do whatever was necessary to reassure and retain clients.

“We’re not looking to walk away from any of our liabilities,” he said. “If we need to replace guarantees then that’s what we’ll do, and that’ll be done with a more stable parent company.”

Interserve also pointed to a £76m contract with the Abu Dhabi National Oil Company (Adnoc), announced on Monday, as evidence of confidence in the company.

Any client defections would underscore concern expressed last week by the chairman, Glyn Barker, about the “stigma” of administration. Barker was attempting to rally shareholder support for restructuring plans put forward by the lenders to avoid administration.

The proposal was ultimately derailed by two US hedge funds that had a combined stake of 33%, enough to vote the plan down.

The company is thought to be contacting clients to assure them that Interserve can continue doing business as usual.

The banks and hedge funds that now own it have strengthened the balance sheet by forfeiting £485m of its £815m gross debt and injecting £110m of cash.

But Interserve is also dealing with interest in it assets from rivals such as Mitie, Serco and Sodexo.

Mitie is understood to be considering a cut-price bid of about £100m for the firm’s support services arm, which employs about 40,000 of its 45,000-strong UK workforce.

Serco picked up contracts in the health sector from fellow outsourcer Carillion after its spectacular collapse last year and could look to repeat the trick with Interserve.


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