Let’s shed some light on public sector contracting

15 Jan 18

Carillion’s collapse shows public sector outsourcing is risky and limited. It’s time for a rethink and greater scrutiny and transparency, argue John Tizard and David Walker.

If last year the charred stump of Grenfell Tower symbolised the failure of arm’s length management of public services, then the collapse of Carillion shows the limits of the outsourcing model that has dominated for the past three decades.

Once a straightforward construction firm, Carillion saw a chance to make money from the running of prisons and schools and – evidently – lost focus as a result.

It’s government that will have to pick up the tab if the company folds – just as when G4S failed to deliver at the 2012 Olympics –incurring costs that were not factored into the original contract and subverting its arithmetic.

We’ve written Out of Contract, to be published next week by the Smith Institute, because outsourcing has reached a watershed and there’s an urgent need to re-survey this landscape.

Whether it’s in Sheffield where a contract apparently is so inflexible it can’t stop the felling of beloved trees or in NHS England’s thinking about new integrated health schemes or councils having to confront the imminent withdrawal of Four Seasons and others from social care, public service contracting seems risky and problematic.

Of course it remains big business. The National Audit Office reckons contracting could account for £100bn of UK public spending.

But that it can’t give a single, accurate figure itself speaks volumes.

Contracting has grown rapidly but piecemeal. Little analysis has been done; we lack performance data. The last major review was commissioned in 2008 by the Brown government from the economist DeAnne Julius, a former non-executive director of a contractor firm.

It’s time not just for a review – and one that spans the NHS, Whitehall, local government and the devolved administrations – but to push the pause button in the interim. Let’s make the default for public services public provision and chart the distance from there to where we now are.

Even that’s hard because we simply don’t know enough. The Whole of Government Accounts, (bedside reading for public finance directors) don’t begin to get at the implicit costs of contracting. Like the banks, if contractors fail it’s the public sector that has to step in; that is a form of insurance and should be costed.

WGA doesn’t assess contract risks or trace the flow of public money into private sector balance sheets where tax liabilities are often laundered away in the tax havens.

If services are delivered by a contractor that does not recognise unions, that barely pays the minimum wage, that pays its directors millions – those are all matters of public concern.

Shouldn’t the public finances, in aggregate, price a contract higher if contractors slash pay and staff end up having to claim tax credits to get by?

The creation of the Crown Commercial Service has given Whitehall more credibility as a sort of macro commissioner but its remit covers only a fraction of outsourcing.

We desperately lack comparative data.

An IT firm performs badly on an NHS contract but the local authority negotiating with the same company for a £500m 10-year deal has no way of knowing.

A central register is needed and we argue for a ‘Domesday Book’ for public service contacting, along with new pan-public sector contract regulation.

Firms can offer the public sector additional capacity and specialist advice.

But the decision to ‘make or buy’ – whether to go outside should not be forced by dogma.

Contracting terms are too often heavily skewed.

Public bodies don’t know enough about the companies they are dealing with; ‘commercial confidentiality’ has too often been used to mask bad deals.

It’s time to shine a bright light into the murk.

Out of Contract: time to move on from the ‘love in’ with outsourcing and PFI is published by the Smith Institute on 22 January

  • David Walker & John Tizard

    David Walker was a director of the Audit Commission. John Tizard is a former director of Capita and leader of Bedfordshire County Council.

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