New Civil Engineer reported yesterday that Sir Terry Morgan, former chair of Crossrail, is laying blame for the national project coming in late and over-budget at the feet of ‘difficult’ contractors.
The ex-chief appeared at a Public Accounts Committee (PAC) meeting – the same committee that heard the BBC peg its astronomically disproportionate inside-IR35 rate on the CEST tool – to deliver evidence as to why the December 2018 deadline has been so far overrun.
While it’s easy to blame the contractors working on the project, there’s another large variable that’s been somewhat skirted over: IR35.
Crossrail’s ex-chairman blames contractors for project delays
During the PAC session, Mr Morgan stated that the contractors working on Crossrail ‘did not deliver’, and are ultimately culpable for the £2.8bn cost increase since the project was begun.
Mr Morgan resigned from his position as chair of Crossrail after it was announced just four months before the project was set to close that it was running extremely late. Mark Wild subsequently took over the project and proposed a new launch date somewhere between October 2020 and March 2021, but Mr Morgan defended his decision not to move the date while still chief of the operation.
He voiced concerns that without that time-pressure, the work would not get done.
“We were putting a lot of pressure on the supply chain to deliver […] they did not,” Morgan said. “One of the risks you take when you move the date is the pressure comes off of the supply side of deliver their promises and getting them back to the pace we were looking for would be very difficult.”
“When I met with the key contractors, who are still causing problems, two of them asked what they could do to help, my answer was: ‘get it done’. There was always a gap between ambition and what got delivered on the ground.”
Could IR35 have had an effect on Crossrail deadlines?
Despite Mr Morgan’s testimonial of lazy, overpriced contractors, New Civil Engineer reports that ‘other Crossrail bosses have blamed a labour shortage in the capital for delays to the project, including workers downing tools to go and work on the now complete Tottenham Hotspur Stadium’.
Connor Ibbetson writes on the subject:
‘Costs on the project have rapidly spiralled out of control, with hikes up to 500% of the original target cost reported on tunnelling contracts as well as significant increases in route-wide civil engineering and systems integration contracts.’
What could be causing these price hikes and shortage of labour? Where have the same problems been seen before across the public sector? It could very well be part of the IR35 fallout.
The off-payroll rules have had a far-ranging impact on the public sector since the reform in April 2018. The NHS, HS2, Network Rail, and the BBC – some of the biggest employers in the UK – have already seen drops in manpower and raises in fees throughout their contractor workforces. It’s no stretch to imagine the likes of Crossrail to be affected by the same legislation.
How is IR35 affecting the public sector?
Dr Iain Campbell, of the Independent Health Professionals Association (IHPA), has seen first-hand the staff crisis that public health services are currently facing as a direct result of the off-payroll rules.
He states: ‘ONS data shows that the number of self-employed doctors has plummeted by 20k and that we have 11k fewer doctors following the measures. The only IR35 tribunal case concerning a medical doctor that ever occurred was that of a junior doctor assisting in surgery and he was found to be outside IR35, yet 100% of health workers have found themselves blanketed inside the legislation.’
While the loss of educated, specialist contractors has had an undeniable impact on the NHS as a whole, perhaps the most ironic example of project delays due to the IR35 reform was seen in the build of HMRC’s very own CEST tool. The digital tool was launched late due to the 18 IT contractors hired by HMRC quitting after reading up on the off-payroll rules whilst programming the test itself - they were fearful of their own IR35 status.
How could IR35 affect the private sector?
An HMRC digital leader previously acknowledged that vital skills may be lost as a result of IR35, admitting that the loss of contract staff could put corporations on a ‘bumpy road,’ but that he's prepared to accept that because ‘it’s more important that everyone pays the right tax.’ When asked to elaborate on that comment at a later date, nothing further was offered by HMRC.
HSBC announced just two weeks ago that it would stop engaging limited company contractors altogether from September 2019 in a bid to avoid the private sector IR35 reform entirely. Described as 'using a sledgehammer to crack a nut', it was criticised as a premature, somewhat overzealous move which will no doubt be mimicked by many more medium to large companies over the next year, resulting in the unnecessary depletion of a flexible, expert workforce.
With household names like Lorraine Kelly, Eamonn Holmes, and Kaye Adams being publically targeted by HMRC's off-payroll rules, plus news of blanket determinations still rife in the public sector, it’s not difficult to see why Crossrail contractors may drop out of the ongoing project or hike up their prices to accommodate for the financial risk of being caught.
Additional IR35 advice for contractors
A genuine contractor, freelancer or consultant who is in business on their own account shouldn’t have anything to worry about when it comes to IR35. However, contract reviews are always advisable; whilst you may know that they're legitimate, IR35 determinations are notoriously subjective.
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.
We also offer IR35 investigation representation from our Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.
You can watch the full Crossrail PAC meeting here.