Flawed outsourcing approach ‘risks another Carillion’

9 Jul 18

The Carillion crisis “could happen again” unless the government changes its approach to outsourcing, the public administration committee has warned.

Its report After Carillion: Public Sector Outsourcing and Contracting, claimed the government has had to renegotiate over £120m worth of contracts since the beginning of 2016 because it accepted bids below the cost of providing the service.

The committee noted the UK government spends £251.5bn annually on outsourcing. But its approach had been price-driven and failed to “appreciate differences in quality that contractors may be offering”.

This, the MPs said, “frequently led to worse services”. The report cited the primary care support contract that NHS England awarded to Capita despite the firm not being able to set “achievable services specifications and performance standards”.

Committee chair Sir Bernard Jenkin said: “The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

“Public trust requires that outsourcing better reflects public service values.”

Last month, Cabinet Office minister David Lidington reaffirmed the government’s commitment to outsourcing.  

The committee said that, after hearing from comptroller and auditor general Amyas Morse, it was concerned the government did not always follow procedure when awarding contracts.

It suggested the Cabinet Office and Treasury ensure all contractual decisions were based on a sound business case and in accordance with the guidance laid out in the Treasury’s Green Book.

It also called on the government to set up a centre of excellence for research into applied contracting and urged collection of evidence about the benefits and disadvantages of outsourcing in general.

This evidence should be used as the basis for transparent outsourcing decisions, the public administration committee said.

A Cabinet Office spokesperson said: “The government is committed to ensuring a healthy and diverse marketplace of companies bidding for government contracts, and we have recently announced a wide package of new measures to further improve how we work with our vendors.

“This includes extending the requirements of the Social Value Act in central government to ensure all major procurements explicitly evaluate social value where appropriate, consulting on improvements to the prompt payment code, as well as measures to make the outsourcing process more robust and the results more transparent.”

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