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John Tizard: Transparency matters in public sector outsourcing – but it must also be auditable

Monday February 10th, 2020

An ever-increasing proportion of total public expenditure goes to a complex web of organisations, including large contractors, SMEs, charities, housing associations and academy chains, who all deliver public services. All expenditure should be transparent. This is particularly the case when services are outsourced.

John Tizard

John Tizard

I recently attended a discussion on contemporary outsourcing across the British public sector – and pleasingly, there was a remarkable degree of consensus from contractors, public sector clients and others that transparency is good and necessary in respect of public service outsourcing.

Such agreement is much to be welcomed and the consensus must lead to agreed comprehensive and universal standards. To be credible and trusted, any data and information made available must be both accessible to stakeholders, including service users, staff and community advocates, and auditable.

The Government also advocates transparency in its Public Procurement and Outsourcing guidance and playbooks. This too is welcome, but transparency in the areas of public policy and practice must be about more than just publishing ‘redacted’ contracts on websites, especially if any amendments to these contracts post-letting are not subsequently published.

Prompted by the discussion above, I suggest that there are some key sets of data and information which should be published and regularly updated on a mandatory basis in respect of every public service outsourcing contract above a threshold value – eg the current EU public procurement threshold. These would include:

  • details of the public body’s ‘make or buy’ decision, the criteria used to reach the decision and the extent of consultation undertaken – and if a public sector body’s default position is in-house provision, it must be able to demonstrate the public benefit of outsourcing and be accountable for not pursuing the in-house provision
  • the business case for any decision to outsource plus forecast benefits
  • the costs of procurement, including specifically the costs of engaging external advisors and the opportunity costs, for example when public sector executives are focused on contracting rather than other public work
  • the costs of the retained client function and some detail of the capacity of that function – eg details of technical capacity
  • the operational performance of a contract, including performance against those KPIs which are relevant to the service and meaningful to service users and the wider public
  • the financial performance of a contract including open book accounting, with defined accounting standards – this should include the financial benefits/dis-benefits to prime contractors and sub-contractors, including internal company trading/finance transfers
  • any contract variations with the associated costs
  • performance against social value and other public policy related contractual targets
  • regular user satisfaction surveys
  • the impact (both positive and negative) for staff, including a small basket of indicators to measure staff satisfaction, etc
  • the ownership structure of contractors, their internal business models and their contractual relations with both subsidiary companies and their supply chains; plus details of major shareholders and beneficiaries, if and when profits are distributed
  • details of any relationships between decisions makers in the public sector client body and the contractor(s)

I would expect most of the above information to be published at least quarterly.

Wherever possible (and it should be a requirement that the exception is only in a very few specific cases), the wider social, economic, financial and environmental impact of outsourcing should be measured and reported on a regular basis – probably at least six-monthly. All the above information should also be required in respect of a supplier’s supply chain, with the requirement being applicable to contractors from all sectors and not solely the business sector.

The information and data should be open to audit by external auditors and inspectorates, and I do think that Government must develop the capacity to undertake such audits on a risk-based approach.

It would be useful if the data and information made available through this kind of approach could be collated to form a national database, which has been previously advocated as a ‘Domesday Book’ – http://www.smith-institute.org.uk/book/contract-time-move-love-outsourcing-pfi/.

The next stage of advancing transparency should be to require organisations bidding for public contracts to declare publicly their tax policies and practices, their remuneration policy and practice for senior staff (especially when this impacts on managerial behaviours and performance), their gender pay gap (if there is one) and their diversity practices. When suppliers are receiving public money to deliver major public contracts, they should be expected to meet best practice in such areas and to be judged on the basis of their actual practice.

Before anyone shouts “this all sounds unduly bureaucratic and expensive”, let me say that the processes need not be; and further, past experience suggests that more accountability when a significant amount of public money is in play should be non-negotiable.

The data and information provided by this approach would be very useful for the purposes of political and media scrutiny, and for the development of both public policy and optimal public management practice. Ideally, of course, the same level of transparency should apply to in-house public services too. This would make the public service landscape and the spending of billions of pounds of public money far more transparent, and in turn enhance accountability and public confidence in the system as a whole.

Transparency and accountability are not ‘nice to haves’. Rather, they are fundamental to the public interest, democratic government and quality outcomes. It is essential that both should apply to public procurement and public service outsourcing.

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