After a probe into overcharging by outsourcing companies G4S and Serco in electronic tagging contracts earlier this year, the coalition has been urged to stop badly performing firms from bidding for Whitehall outsourcing deals.
The National Audit Office called for ‘the threat of financial penalties and being barred from future competitions if things are found to be wrong’ to be faced by firms. In addition, Justice Secretary Chris Grayling has said if Serco were found to have engaged in systemic malpractice it would not win public contracts in the future.
But speaking to Public Finance, Martyn Hart, chair of the National Outsourcing Association, which represents firms in the sector, insisted such a move would increase costs.
‘At the end of the day, the customer would pay for it,’ he said. ‘If the supplier thinks there’s a risk that they may have such measures placed on them – maybe for what they see as not their fault – they’re going to price in that risk to take account of it.’
If this led to some larger contractors losing tender competitions to smaller firms, the risk of service failure could also increase, he added.
‘The big companies that understand the risk and load their prices to take that risk probably won’t win some business, and smaller companies will. But they’re the ones that risk [of failure] is going to happen to.’
Instead of such ‘draconian’ penalties, the government needed to do more to ensure the performance of outsourcing firms was properly measured by civil servants, he said.
‘You have to make sure you have the governance right – to make sure you’re getting what you want, and when things happen like you’re measuring the wrong thing, then you can do something about it and you’re not stuck.’
‘What government should do is actually train their people so they have a decent chance to do this properly. That is what is needed.’
However, trade union Unison backed the call for some firms to be struck off.General secretary Dave Prentis said that G4S and Serco were the ‘tip of the iceberg’ as many contractors were failing and wasting millions of pounds of taxpayers’ money.
‘If it is proved that a private company has acted fraudulently, failed to deliver for and cheated taxpayers, they should be barred from bidding for contracts in the future,’ he told PF. ‘Using private contracts can add additional costs such as financing, corporation tax and contract management costs, in addition to the profit that the private sector expects to make. The bottom line with these contracts is that the supplier needs to make profit and this benefits the shareholder, not the taxpayer.’
