The withdrawal by GrandMet Trust, a subsidiary of the massive Grand Metropolitan hotel and fast food chain, came just seven working days before the final contract was due to be signed on January 23. The Trust would have taken over the service on April 1.
The withdrawal is likely to be extremely embarrassing for the Department of Education and Employment because it had awarded the Trust "preferred bidder status" - rejecting several rival bids including a partnership between the four boroughs, the local training and enterprise council, Sainsbury and the Woolwich.
This provoked considerable perplexity about the Government's reasons for the choice. Grand Metropolitan's chairman, Lord Sheppard of Didgemere, is one of 11 members of party chairman Brian Mawhinney's management board at Conservative party's central office - the only business representative on the board. GrandMet Trust is believed to have submitted unsuccessful bids for several other careers services. The DFEE has refused to comment on the Trust's retreat other that to say it "fully understands the reasons behind GrandMet Trust's decision".
Gavin Moore, Lewisham's chair of education, said on Monday that the whole procedure should be thrown open to public scrutiny. "There should be an inquiry into why the DFEE gave GrandMet preferred bidder status - did they rule out the LEA partnership's bid on the basis of dogma, or was Grand Met's bid really better? If it was, why was the DFEE not prepared to give us any evidence for that? They refused to justify the decision".
Debbie Scott, director of GrandMet Trust, sounded apologetic, but could only offer a gnomic press release in explanation of the Trust's decision: "This follows six months of due diligence by the Trust... the Trustees have decided it is not in the Trust's best interest to commit its funds to the level of investment necessary."
At a meeting between London boroughs and the DFEE on November 28, Lord Henley gave an assurance that all preferred bidders would have to meet the necessary criteria before contracts were signed - although the nature of those criteria has not been established. Following the meeting, Chris Waterman, education officer at the Association of London Government, wrote to Lord Henley reiterating concerns about "the lack of transparency of the process and the remoteness of the accountability for the success of the new arrangements".
Lord Henley's reply on January 1 disclosed that a study by the National Audit Office would focus on the DFEE's handling of the contracting-out process. It will report in July.
Cathy Bereznicki, chief executive of the National Institute of Careers Guidance, agreed that GrandMet Trust's withdrawal was embarrassing for the Government: "The GrandMet Trust took a very high profile risk in backing out at this stage, which suggests there must have been a good reason. The public has a right to know why - is there something wrong with the contracting process? In the Government's shoes, I'd be wanting to look at the whole process again. " There are still about 30 contracts in England that have not yet been awarded.
Cathy Bereznicki was worried that the GrandMet Trust's decision would cause disruption and insecurity in the careers service in south-east London.
The DFEE must now either tell the boroughs to go on running the service until the bidding process is re-run, or look again at some of the other original bidders.