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Cross Government Review of Major Contracts

Tuesday January 7th, 2014

Cabinet Office Minister Francis Maude instigated the Cross Government Review of Major Contracts following the revelation of inappropriate claims by and payments to G4S and Serco in respect of their ‘tagging’ contracts with the Ministry of Justice.

The Review, which was conducted by the Cabinet Office (Government Procurement and Crown Commercial Services) supported by PwC and Moore Stephens, looked at 28 contracts across government. It did not consider the MoJ contracts which triggered the inquiry. Nor did it examine any contracts held by G4S and Serco with local government, the NHS, the police or LOCOG. Rather, it focused exclusively on the two companies and central government departments and their direct agencies and NDPBs. Neither did it consider those contracts and issues which are subject to police or Serious Fraud Office inquiries. It is estimated the contracts reviewed create revenue totalling around £1bn per year to the contractors.

John Tizard

John Tizard

The findings of the Review are perhaps not surprising to those who have been involved in and/or studied central government procurement and contract management. Significantly, the Review has identified no evidence of ‘deliberate’ errors or omissions by either G4S or Serco in the audited contracts that led to irregularities in billing and payments.

Alarmingly, however, the Review has identified serious weaknesses in both client and contract management across government. These weaknesses are in critical areas of contract and commercial management, including: contract planning and governance; managing the transition and set-up of contracts; relationship management; change management, especially of contract terms and requirements; performance management; risk management; and financial controls. These are far from trivial matters, especially given the size and value of government procurement of services, as well as the social and economic importance of these services. Worse still, the discovery of such weaknesses is not new – indeed they have been repeatedly identified and reported over recent decades.

Sadly, I was not surprised to read that one of the key findings was that there is too little ownership of and interest in major contracts at any stage, but most especially at post-contract letting stage, at the most senior levels in Whitehall departments. This remains a stunning and deeply depressing finding given both the value and number of such contracts across government and the findings of numerous NAO, PAC, select committee and other reports on the same subject over the last couple of decades. In my experience, it is most unlikely that a similar lack of interest at chief executive and chief officer (and indeed, political leader level) would be found in local government.

The Review proposes that departmental commercial directors should have broader responsibilities to embrace both procurement and post-contract management of major contracts. This makes much sense although I suggest that the responsible operational and policy executives also need to be involved. I further suggest that commercial directors should also be involved as members of departmental boards in the initial policy-making stage in order that if it is decided to externalise the supply of services, this decision is taken with a full understanding of the potential supply market response and the risks involved, ensuring that adequate commercial considerations are built into the design of policy and services.

The Review has recognised that the risk of false payments and errors in measuring performance and remunerating it correctly are usually greater when government uses payment by results (PBR) contracts. Three DWP Work Programme contracts have been identified where there is a possibility that there may have been irregular payments – each of them being PBR-based contracts. Surely, such contracts will be more prone to ‘gaming’ by both clients and contractors in addition to being more difficult to performance and financially manage? Yet, government and the wider public sector are seemingly intent and committed to expanding PBR contacting. I suggest that they would be advised to pause and reflect deeply before proceeding, given the findings in this Review.

Tax payers will be horrified to learn that the Review found weaknesses in contract management in the ‘majority’ of the contracts which it examined. This should be a major wake-up call to politicians, senior public sector managers, policy advisors and consultants who are advocating the outsourcing of more and more public services, including complex ones and ones where outcomes require complex contributions from a range of players.

The Review concludes with eight eminently sensible and necessary recommendations. Of course, there may be other recommendations arising from the various reviews and inquiries being undertaken in respect of the Ministry of Justice contracts that prompted this Major Contracts Review. Government would be well advised to carefully study and absorb the Review’s findings and consider how it can ensure that the recommendations and other measures are put in place to ensure robust procurement, contracting and client contract management before embarking on the outsourcing of probation and other complex services.

The Major Contracts Review, like the Institute for Government’s report on government contracting before it, has raised many questions about the competency of government as client for major public service contracts. It has not, however, addressed some even more fundamental questions, such as:

  • does outsourcing offer value for money in the long term, particularly when a holistic view is taken of its economic, financial and social impact?
  • does outsourcing (and under what conditions) best lead to innovation, social value and better outcomes?
  • what do suppliers have to do to ensure and prove that they are ethical within the context of a public service ethos; and how does the public sector test this pre- and post-contract?
  • if the public sector outsources, can the voluntary, charity and social sectors offer better outcomes than the business sector; and if so, for what services and under what conditions?
  • what measures are necessary to ensure transparency and disclosure of financial and operational performance when services are outsourced; and how should this be independently audited?
  • how best can public sector clients and providers from all sectors be held to account when services are outsourced?
  • who is best placed to hold and share data and information on the performance of contractors who operate across central and local government, NHS, police, etc; and how should this be done?
  • how can experience and lessons be shared across the public sector, including international practice and experience?
  • how should the public and other stakeholders be involved in all stages of public service procurement processes, including the initial ‘make or buy’ decision?

The Cross Government Review of Major Contracts makes sobering reading. It should be widely read and it should influence policy and practice. There is a case for an extension to include all the public sector and all the major contractors. And, I suggest, there is an even greater case for a comprehensive review of public service outsourcing, which would address the wider set of questions set out above.

The NAO has recently reported that there is a crisis of public confidence in public service outsourcing. Unless and until there is either a major change in government policy away from charging into more and more outsourcing and/or there is a comprehensive review as I am proposing, this confidence is unlikely to be restored ­ –if it actually ever existed!
John Tizard
Online: www.johntizard.com
Twitter: @johntizard
Linked In: John Tizard

 

Gov Opps training partner, PASS (Procurement Advice Support Service) runs relevant training courses on public and private sector procurement. These include Contract Management, Writing a Tender Specification, Legal Impact on Public Procurement and Preparing Perfect Tenders. To view all courses, including the new EU Procurement Directive events, just click here: http://www.passprocurement.com/what-we-do/training/

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