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Public sector outsourcing and contractors must always be transparent

Tuesday September 19th, 2017

The BBC programme Panorama recently reported that it had seen documents suggesting that G4S has been making significant profits from running two immigration removal centres near Gatwick Airport. One of these, Brook House, was the focus of a Panorama investigation, which exposed chaos, bullying and and the abusive treatment of detainees by some staff.

John Tizard

John Tizard

Panorama claims that it has seen documents stating that G4S earned more than £2.4m in pre-tax profits from the centre in 2013.

G4S said the sum was “significantly overstated”.

In addition, a former senior G4S manager has told the BBC that he sat in meetings where those profits were discussed. He is reported as saying that profits were “far in excess of what was meant to be made” from the Brook House contract and that during those meetings “profit margins at the end of the year that I left were declared at around 20% for the Brook House contract”.

When appearing before the House of Commons Home Affairs Select Committee a senior G4S executive refused to disclose profit margins on this contract on the grounds that such information is “commercially confidential”.

G4S and its client the Home Office should recognise two important facts:

  • this money is public money and there has to be accountability for all public expenditure.
  • there are genuine public interest questions to be answered about the level of profit, financial performance and operational performance at this IRC, especially in light of the reported chaos and abusive treatment of detainees.

I wonder if the Home Office was complicit in the company’s decision to conceal the level of profit made on the contract even when challenged in the Select Committee hearing. I have known of cases when government departments have been even more inclined to hide behind the screen of ‘commercial confidentiality’ than contractors themselves.

I am sure that we have not heard the last of this contract and its financial contribution to the G4S bottom line.  As we await more questions and revelations I believe that we should turn to a more generic policy issue.

The Government and wider public sector could, and I would urge should, adopt clear policy and practice in respect of public service outsourcing contracts, their transparency and accountability.

I think that such policy and practice should include key elements for all new contracts above an agreed threshold value and for all those which are politically sensitive. Public bodies should seek to negotiate these to existing contracts too.

These key elements would be:

One: ‘open book accounting’ should be applied in accordance with agreed accounting standards and ‘open book accounts’ should be subject to third party independent audit and public publication. The ‘open book accounting’ agreement for contracts should be published.

Two: contractors should be required to share full information on all cashflows and internal payments made within their companies including cross charging within single companies and conglomerates, and with their supply chains – this would ensure that contractors cannot hide or deflate declared profits on individual contracts by charging projects inflated fees for services provided from elsewhere within the same company/conglomerate.

Three: contractors should declare overhead charges and recharges and these too should be traceable and auditable.

Four: contractors should publish comprehensive remuneration details for senior staff involved in specific contracts and their oversight.

Five: contractors should be required to give evidence and information to Parliamentary Select Committees, local authority scrutiny committees, and to relevant inspectorates and the NAO.

Six: consideration should be given to profit share mechanisms for contracts and where appropriate profit caps could be set.

Seven: contracts should be published without redactions so that there can be a public understanding of performance standards, commercial terms, financial incentives, reporting processes, etc.

Eight: public sector departments, authorities and agencies should themselves be transparent in terms of their contracting related costs and publish this information.

Nine: public sector departments, authorities and agencies should be required to ensure that the above measures are enforced and ensure that the client has the necessary capacity and competency to fulfil the above.

Ten: contractors should be subject to the Freedom of Information Act

The requirements on contractors would be enforced through the contract itself and apply throughout contractors supply chains. There should be no wriggle room.

Government should place a statutory duty on public bodies to include these conditions in all their significant public service contracts.

Consideration might be necessary to protect future competitive contestability when contracts are due for renewal but this must not be an excuse to deny transparency so any constrictions should be used very sparingly and in accordance with the regulations.  This would not prevent full disclosure at all times to Select Committees and local authority scrutiny committees as in very specific circumstances the data could be presented confidentially.

I would argue that when such confidentiality is applied for these reasons or for any other reason there should be a right for citizens and taxpayers to challenge the decision of the public sector contracting body. These challenges and appeals could be determined by the Information Commissioner.

Of course, it would be desirable to extend transparency measures to include company ownership, tax policy and much more. However, these ten measures would address the issues raised by the G4S case. They would aid public confidence in public service outsourcing and the use of public expenditure.

Responsible contractors will understand and respect the introduction of such measures. Those companies that are not prepared to accept them can choose not to bid for public service contracts.

The recent Panorama reports have identified a matter of major public interest – though sadly not new issues – and the time to address them is now.  Government should act and act speedily.

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