CIPFA calls for ‘open book’ outsourcing deals

26 Mar 15

The next government should introduce an ‘open book’ approach to outsourcing contracts to increase transparency and value for money, CIPFA has said.

In a briefing published today, the institute said there was currently insufficient information about the estimated £93.5bn spent on services that are contracted out to private and third sector firms.

A new standard for open book contract management should be introduced across the public sector to improve the openness and value of significant amounts of public money.
High-profile failures in recent years include the over-charging for electronic tagging contracts by
outsourcing firms G4S and Serco, as well as failures by G4S to provide the required number of security staff during the 2012 London Olympics.

Under open book provisions, the commissioning body and contactor agree to share the profit and loss in a contract. If the costs are well managed, both client and contractor have the opportunity to share any savings, while both share the risk of any increase.

The arrangement ensures there is a focus on value for money, and not just provision of services at the lowest cost. It is a model that has been adopted within the UK construction industry.
CIPFA chief executive Rob Whiteman said open book provisions helped mitigate the risk of contract failure, while also improving efficiency and delivery.
‘The amount of taxpayers’ money being spent through third parties to deliver public services is increasing,’ he said.

‘Meanwhile there are a growing number of scandals and disappointing contract failures which demonstrate just how significant the risk is to the public sector when these arrangements go wrong.

‘It is therefore far too important an area for government to just let slide, and it needs leadership and direction from those who decide where public resources are spent.’

In particular, the Open book contract management briefing stated that, as a condition of public sector contracts, businesses should agree that their own external auditors would provide a report to the public sector body commissioning the service. This would confirm the amounts charged have been properly costed and were consistent with the contractor’s own financial management and external reports.

The call comes after Cabinet Office minister Francis Maude said the government planned to trial new contract approaches to increase the transparency of outsourcing deals, including introducing a presumption in favour of disclosing the ‘vast majority’ of commercial terms.

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