IFG research: one third of government spending on contractors

12 Dec 18

Around one third of government spending – £284bn – is with external contractors and suppliers, Institute for Government research has revealed.

A report published today showed four department spent more than half their entire budgets with external suppliers. These were: the Ministry of Justice, the Department for Transport, the Department for International Trade and the Department for Environment, Food and Rural Affairs.

It also noted larger suppliers were increasingly winning government contracts.

Around a fifth of all spending went to ‘strategic suppliers’ last year. These are companies that receive more than £100m in revenue from the government and is up from an eighth of spending in 2013.

The IfG said this was a “risky” trend for the government given that its top three suppliers have all experienced financial difficulties recently.

The IfG’s research came as shares in the outsourcing firm Interserve nosedived as it struggled to secure a second financial rescue package. Earlier this year, Carillion – which has many public sector service and construction contracts – collapsed.

Emma Norris, director of research at the IfG, said: “Government is spending hundreds of billions of pounds every year with external suppliers – but there are signs that some players involved in outsourcing are struggling, most recently Interserve.”

She added that the government’s own data on outsourcing and procurement was poor and it did not have a clear picture of how much is spent, with which firms and on what goods and services.

“[Government] needs to look hard at the experience of the past 30 years of outsourcing, develop a much stronger sense of what has worked well and what has not, and urgently review the health of its procurement markets,” Norris said.

Commenting on the findings, CIPFA policy manager Alan Bermingham agreed that poor data collection and contract monitoring had “too often left public bodies exposed to significant harm”.

He added: “We must acknowledge while austerity has led many contract prices to be forced to their lowest level, value for money from procurement will not be achieved by a focus on cost alone. More meaningful measures of social value need to be pursued during the contracting process with private and third sector organisations.”

He suggested transparency could be boosted by wider use of open book arrangements, a more diverse supply base and new partnership arrangements to replace PFI and PF2.

A pamphlet published at the start this year by public sector commentators John Tizard and David Walker for the Smith Institute called for external regulation of public sector contracting a central register or ‘Domesday Book’ of all contracts.

The IFG’s research looked at all external spending by the government including stationery and medicine, capital projects such as road building and school construction, and services like probation and social care.


  • Vivienne Russell
    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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