- ‘Merry-go-round’ culture encouraged companies to
bid for contracts undeliverable at agreed price
- Procurement process incentivised focus on tendering
and winning bids, not ensuring right supplier
- Further concerns regarding contract specification,
transparency, use of SMEs and role of Cabinet
Office
COMMENT FROM PAC CHAIR MEG HILLIER
MP
“The Public Accounts Committee has long highlighted weaknesses in
Government contracting and the lessons it must learn if it is to
outsource effectively for the benefit of service users and
taxpayers.
“The collapse of Carillion in January sharpened our focus on the
relationship between Government and its Strategic Suppliers –
companies that receive over £100m in annual revenue from
Government contracts.
“Vast sums are invested across vital public services, with
far-reaching impacts on the lives of citizens. It is critical
that their money is spent wisely and with their best interests at
heart.
“This report, which follows our publication of Government’s Carillion
risk assessments and new evidence taken
from Government and Strategic Suppliers, makes important
recommendations in this direction.
“In particular, we have identified a need for Government to be
more assertive in shaping the markets in which it operates, with
a renewed focus on driving value for taxpayers’ money.
“It must look with fresh eyes at the motivations of companies
currently bidding for central government work, and develop a
strategy that requires contract-awarding bodies to look beyond
bottom-line costs.
“Crucial to this will be to embed procurement best practice
across departments.
“For example, there must be clearer specification of contracts,
properly scoped, so that when any deal is signed there is an
agreed understanding between Government and supplier of what is
being paid for, and over what timescale.
“There are many areas in which the Cabinet Office can drive
compliance across departments – not least turning its proposed
‘playbook’ of guidelines, rules and principles for contracting
into a set of mandatory requirements.
“We encourage it to respond positively to the recommendations set
out in our report and take the necessary steps to ensure its
authority is better felt.”
REPORT SUMMARY
Successive Governments have contracted out public services to the
private sector and other third party organisations.
Government contracts involve vast sums of public money, and have
significant impacts on the lives of citizens. The Government
cannot divest itself of responsibility when it contracts out the
delivery of public services.
Many of the companies that we have looked at rely on the public
purse for a significant proportion of their revenue. Those
companies need to be accountable to Parliament and taxpayers once
they decide to take public money.
The Public Accounts Committee has too often seen examples of
businesses which have bid for contracts in areas where their
understanding of the sector is weak and their expertise is not
well suited.
The emergence of a small group of large companies which are
expert at winning public contacts but who do not always deliver a
good service is a concern.
Contracting out was originally for two reasons: to save money for
taxpayers and to encourage innovation in the delivery of
services. We have concluded that too often these are not being
met.
There is a wider public value to delivery of services than just
the bottom line cost. The Social Value Act will be a test for
Government about how it assesses the value of the £billions of
taxpayers’ money it spends on outsourcing.
Companies incentivised to bid by strong financial margins are now
concerned that margins are too tight. We heard from a number of
strategic suppliers that are no longer bidding for contracts
where they consider margins to be too low.
Most deny “low balling” where they bid low for contracts. But the
money that could be made on contract variances delivered healthy
profits.
We have seen the Government’s assessments of its largest
suppliers. These show how many contracts at any one point are
performing badly but not so badly that termination is an option.
We have chosen not to release these papers because, while much of
the information is in the public domain, we are clear that
revealing the Government’s rating of a business could have a
severe impact on its smaller supply chain businesses and on the
jobs of many workers.
We have long raised concerns about the impact on the end user of
services. Contracting out has become a transactional process that
too often ignores quality of service and the knock on cost of
poor service on users.
If the Government wants to demonstrate a commitment to driving up
value for money in contracting it should heed this report and the
work of other Parliamentary committees.
