Openness and outsourcing

The CBI’s proposals for more transparent public sector contracts are a good start. But there remains scope to be bolder and more ambitious

It was refreshing and encouraging to see the CBI declare itself in favour of greater transparency in public sector contracting. Let’s hope that government and the wider public sector responds enthusiastically and actively to this call from the representative body of many of the country’s larger public service contractors.

In my experience, the lack of transparency, a reluctance to disclose contractual information, and the cry of ‘it can’t be released because it’s commercially confidential’ comes as much from the public sector than from the companies involved. Of course, it can come from both and too often does.

The CBI’s statement of intent comes after the publication, at the end of last year, of the National Audit Office’s reports on the management of major government contracts and performance of four of the major contractors.

It follows recent revelations of fraud and failure in a number of high-profile contracts and serious questions being asked about some of the contractors most dominant in the outsourcing markets. It is also published at a time of increasing cynicism and declining public confidence in business, the public sector and politics.

The CBI and its public service industry members have rightly recognised that unless they can rebuild confidence, public opinion will turn even further away from supporting or even tolerating the outsourcing of public services to the business sector.  The current government’s ambition to open-up the NHS, education, probation and other public services is likely to make the public even more wary of business involvement in sensitive and personal services.

Businesses have also recognised that they have more to gain from appearing to be transparent in regard to performance and related information. The charge of being secretive and failing to share information can become both tedious and distracting.

The CBI is right to make the case for transparency.  It should, of course, be arguing that business sector providers are as transparent as the public sector; and for that matter, so should social sector and charitable providers. The deal should be simple: ‘if in receipt of public money to deliver public services, the requirement is that providers will be transparent and subject to full scrutiny by politicians, inspectorates and auditors such as the NAO, Ofsted, the Care Quality Commission, and the media’.

The CBI has set out some interesting and specific proposals:

• in every contract negotiation, contractors and their customers should discuss how to release information proactively and in response to public enquiries, but also make the information released as accessible and comparable as possible
• all government contracts should be published online, as long as the customer is happy for this to happen. When a contract isn’t published or is in any way redacted, there should be a clear explanation of why this has been done and at whose request
• in every contract negotiation, there should be a presumption in favour of open-book accounting. In practice, this means a full and frank discussion between the contractor and its public sector customer about the contractor’s profit margin. Profit information should include the value or savings being delivered
• the National Audit Office should be able to audit government contracts with the private sector. This should take place on a structured and systematic basis, to avoid adding a regulatory burden which will increase the cost of services.

I am delighted to see these proposals as for some time I have been arguing for precisely such measures to be standard in every significant contract let by central or local government, the NHS, the police and the rest of the public sector.

However, I would go further still, and believe that the CBI ‘transparency list’ should be the part of a wider set of measures. These would include the following disclosure requirements for all contracts above an agreed threshold value or political sensitivity:

• a public sector client not being able to withhold the publication of contracts except in the most extraordinary circumstances such as national security, and even then these contracts should be available to the relevant Parliamentary committees and the NAO
• a requirement to publish audited and verified statements on contractor’s operational and financial performance, with access to relevant information, systems and personnel for the NAO, internal public sector auditors and their external auditors
• standardised accounting procedures and practices for ‘open-book’ accounting including annual independent audit
• the publication of all financial flows between and within contracts and joint venture companies – so as to capture internal trading that outsourcing companies practice for support such as IT, consultancy and support services
• publication of details of supply chains and supply-chain management, risk transfer and payments
• visibility of the ownership and company structures of all bidders and contractors
• the publication of employment, remuneration and tax policies and practices of all providers
• clear and regular reporting on the contract’s added social value
• providers being required to submit themselves to political scrutiny processes
• the Freedom of Information Act should be applied to all providers and public sector commissioning, procurement and contract management

In addition there should be obligations on public sector bodies that are contracting or considering contracting to:

• publish and consult with the public, staff and other interested parties on the business case for a proposed outsourcing in advance of the commencement of the procurement
• publish details of the contract – and, where appropriate, the contractor’s supply chains, monitoring  and management processes; and their interventions, especially if these might lead to financial penalties and/or contract variations (and to report on such penalties and variations)
• be transparent and disclose details of relationships between providers and decision makers/influencers in the public body
• produce regular reports on the costs of procurement, including the use of external advisors, and contract management for individual contracts
• allow the public and social and community sector to ‘challenge the right to supply’, even when services are already outsourced

These should not be burdensome or expensive requirements. They should be applied in proportion to the size and sensitivity of contracts and contractors, especially to small- and medium-sized enterprises, social enterprises and charitable sector providers.  However, the assumption should be that they should and will apply – and when they are not applied, there should be a clear statement as to why not.

There may be a case to suspend the publication of some information close to a new procurement process commencing but, again, this exemption must not be over-used to deliberately obfuscate.

The CBI has started an important debate and the public sector and contractors do not have to wait for a response from government or legislation.  Rather, they can start to apply these sensible principles around the practice of transparency and accountability today. The CBI’s proposals, if implemented, are a good start  – but there remains scope to be still bolder and more ambitious.