The Carillion collapse has exposed fundamental flaws in the
Government’s approach to contracting, says PACAC in its latest
report, “After Carillion: Public Sector Outsourcing and
Contracting”.
The collapse of Carillion has badly shaken public confidence in
outsourcing. During PACAC’s inquiry, the Committee found that the
Government’s overriding priority for outsourcing is spending as
little money as possible while forcing contractors to take
unacceptable levels of financial risk. This approach has been
made more damaging by the fact that the information the
Government uses to inform the outsourcing process can be either
incomplete or simply incorrect. The Government must be aware of
this: it has written contracts that force contractors to pay out
when it gets its own data wrong and has been known to forego
performance penalties in the initial phases of contracts.
As a result of the Government’s preoccupation with cost, PACAC
has found that the Government has had to renegotiate over £120
million of contracts since the beginning of 2016 to ensure public
services would continue.
Ultimately, this has led to worse public services as companies
have been sent a clear signal that cost, rather than quality of
services, is the Government’s consistent priority. Contractors
told us that the Government was known to prioritise cost over all
other factors in procurements, driving prices down to below the
cost of the services they were asking firms to provide. Worse,
the Government was unable to provide significant evidence for the
basic assertion behind outsourcing: that it provides better
services for less public money, or a rationale for why or how it
decides to outsource a service. This was especially true for PFI.
Shockingly, the Government admitted to the Committee that the
“entire [PFI] structure is to keep the debt of the balance
sheet.”
The process by which the Government decides to outsource and
awards contracts is also in desperate need of greater
transparency. The Committee found examples where the process
appeared opaque and that the Government does not always follow
its own contracting procedures.
PACAC calls on the Government to commit to underpinning contracts
with realistic assessments of cost and risk transfer. It must
collect evidence about the benefits and disadvantages of
outsourcing in general as well as for individual services, and it
must use this evidence as the basis for transparent outsourcing
decisions.
Chair of PACAC, Sir MP, says: “It is
staggering that the Government has attempted to push risks that
it does not understand onto contractors, and has so misunderstood
its costs. It has accepted bids below what it costs to provide
the service, so that the contract has had to be renegotiated. The
Carillion crisis itself was well-managed, but it could happen
again unless lessons are learned about risk and contract
management and the strengths and weaknesses of the sector. Public
trust requires that outsourcing better reflects public service
values. The Government must use this moment as an opportunity to
learn how to effectively manage its contracts and relationship
with the market.”
