PAC highlights ‘crisis’ in government outsourcing

10 Dec 14

Government outsourcing deals for public services are in ‘crisis’ as contractors have not shown appropriate duty of care for public money and Whitehall departments have not managed the arrangements effectively, MPs have said.

Examining the government’s response to G4S and Serco overcharging the government for electronic tagging services, the Public Accounts Committee said the failure represented ‘a belated wake up call to government’.
They found the case illustrated the private sector, which delivers around £90bn of services under contract, had often failed to work in the public interest. The public needs to have confidence that contracts are managed well by both government departments and the contractors themselves, the Transforming contract management report stated.
‘In the course of our work we have identified and examined similar cases where there are allegations of the misuse of taxpayers’ money,’ PAC chair Margaret Hodge said.
‘In our view, the present crisis could have been avoided if earlier recommendations from this committee had been acted upon. The electronic tagging case has served as a belated wake up call to government.
‘Departments have taken their eye off the ball and placed too much trust in contractors and relied too much on the information contractors supply.’ Following the tagging case, the government is now working to improve the way it manages its suppliers and contracted-out providers of public services, the Transforming contract management report stated.
However, it highlighted that the problems with contracting were widespread, long-standing and rooted in the culture of the civil service, and improvements must not be allowed to ‘drift away’ as they have in the past.
‘Contracts need to be managed at a sufficiently senior level, with strong accountability in place, by people with the right commercial expertise,’ Hodge added.
Four areas should be prioritised for action – improved contract management, improving the culture of private firms, tackling quasi-monopoly suppliers and reducing the advantages contractors have by locking in ‘unreasonable and out-dated costs’ in long-term deals.
This should include accounting officers remaining accountable for spending throughout the life of contracts.
Led by the Cabinet Office, departments must also take concerted action to develop competitive markets for public services, including possible intervention in cases of market consolidation to ensure there is enough competition for services.
The committee called on the Cabinet Office, Ministry of Justice and Home Office to report back specifically on progress with their contract management improvement plans.
Responding to the report, a Cabinet Office spokeswoman said the government was overhauling the government's procurement and commercial management, which had saved taxpayers £5.4bn last year compared to 2009/10.
‘At the time of the last general election departments simply didn't know how much business they did with strategic suppliers. We welcome the committee's support for our subsequent reforms,’ she added.
‘Despite our excellent progress over the past four years, we have long argued that there is more to do, including to strengthen transparency further and support small- and medium-sized enterprises. Public service providers should act with integrity and our action over the past year shows how seriously we take breaches of those high standards.’
Matthew Fell, the CBI’s director for competitive markets said that too often in the past the government has focused on doing deals for the lowest cost rather than securing high-quality services at best value.
‘The government is working hard to become a better customer, but turning this supertanker around is slow,’ he added. ‘It needs to be clearer on the outcomes it wants to achieve and attract people with the right commercial skills to manage markets effectively.

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