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We need to know who the public sector contracts with and how they perform

Monday March 5th, 2018

The House of Commons Public Accounts Committee (PAC) has told the Government that it needs to better understand the number of contracts held across departments by a single private company, and how it is performing in those contracts.

John Tizard

John Tizard

This comes after the Committee considered the failure of the largest commercial further education (FE) provider, ‘learndirect’.

The absence of such knowledge is incredible – and frankly irresponsible given the size of public service outsourcing and the Government’s intent to grow the number of contracts for services ranging from NHS clinical services to maintaining the country’s military nuclear equipment to back-office services. The Crown Commercial Service has for some time stated its intention to create a single database for Whitehall but has yet to deliver on this goal. And, of course, many of the same companies that contract with central government also contract with local authorities, the NHS, the police and across the public sector.

And it should not be forgotten that some companies contract with public bodies from across the sectors, on a wide geography, and often deliver a large spectrum of services.

The lack of such basic information clearly puts the public sector at a serious disadvantage. It weakens its procurement power and reduces its contract management effectiveness. It should be possible and certainly would be desirable for any public body considering letting an outsourcing contract to be able to easily access information on potential suppliers and bidders, their performance record, their commitment to a public service ethos and what they are like to work with from a client perspective.

Such an approach should include major charities, social enterprises and others involved in public service contracting though in the case of the largest contracts business sector providers are dominant.
In order to manage risk, both the public sector collectively and individual contracting bodies need to better understand bidders’ and suppliers’:

  • market share
  • performance
  • flexibility to change contract and activities in response to their clients
  • financial health (this is so important after recent collapses and profit warnings)
  • business models
  • ownership – e.g. private equity and hedge fund owners and investors are likely to press for larger and faster returns on their investment than some other owners and investors
  • employment standards
  • remuneration and tax policies and practices

The recent Carillion collapse has once again demonstrated that the public sector cannot transfer ultimate risk to a contractor. Services must be sustained. even when the provider pulls out or goes into administration. The lessons that need to be learnt are as much about the quality of public procurement as they are about contractors. Poor procurement can too easily lead to servicer failure.
These requirements and need for information signal that the creation of a central database is very long overdue.

The PAC is right to identify this serious gap in the public sector’s armoury. However, whilst the Committee has focused on central government, I do believe that the net should be cast still wider.

In our recent report Out of Contract: time to move on from the ‘love-in’ with outsourcing and PFI published by The Smith Institute - – David Walker and I called for the creation of a ‘Domesday Book’ of all significant public service outsourcing contracts and the creation of a central clearing house for evaluating the performance of providers across multiple contracts, sharing what is learnt and advising public bodies. Indeed, we saw such a ‘Domesday Book’ and the proposed body as embracing the entire public sector, not simply central government. We also called for the establishment of a public service outsourcing regulator to establish standards, enforce these and, as necessary, regulate procurement and public sector client performance, and regulate the supply markets.

Of course, it will take time to create the ‘Domesday Book’, although the core recording of the number, size, value and length of significant contracts should be relatively easy to compile – if the political will exists to do so.

It would be sensible to start with:

  • the major contractors – the NAO has already identified the public sector’s heavily reliance on four companies
  • contracts of a certain value and above
  • services and markets which are considered most at risk from a lack of quality, poor competition, etc.
  • or a combination of some or all these criteria

Central government will obviously need to bring local government, the NHS, police and others on board and to do so in ways that are consistent with decentralisation, but it should be in the interests of all the public sector to contribute to, and use, the assembled data. As for the creation of a regulator, this is likely to require legislation, and so is clearly a matter for government.

There are strong arguments for pausing the rush to outsourcing, and reviewing the policy and its impact, as well as individual contracts. However, such reviews would benefit from access to the proposed ‘Domesday Book’ and if, as is likely, some outsourcing continues, then data, information, shared experiences and new regulation are going to be essential.

Learningdirect’s failure was costly in many ways, as have been other recent major failures such as Carillion. These are not one-off incidents. The public sector simply cannot allow any company or supplier to become ‘too big’ to fail.

It is to be hoped that the PAC’s recommendations are heeded and developed further – quickly.

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