The Public Accounts committee has slammed government’s approach to outsourcing


The Public Accounts Committee has published a scathing assessment of the government’s approach to outsourcing and procurement following the collapse of Carillion.

The government spending watchdog said its inquiry into government’s management of strategic suppliers had found that "outsourcing is at a significant crossroads".

The report added: "The collapse of Carillion has brought to a head concerns about government’s approach – both from a policy and a practical perspective."

MPs from the PAC said there were still significant questions about the government's handling of Carillion's liquidation.

The report said: "Government maintains that the collapse of Carillion was managed successfully and demonstrates that no company is too big to fail. But it was clear that Carillion believed until the end that it was too big to fail.

"Government has been keen to trumpet its delivery of a contingency plan which enabled most of the public services delivered by Carillion to continue the day after it went into liquidation.

"But it cannot rest on its laurels. It faced a huge task assessing the contracts at risk and the detail of the supply chain. Had Carillion collapsed in December there would have been serious problems – the game of brinkmanship was a close-run thing."

The PAC said while it welcomed the government's intention to introduce a requirement for suppliers to produce ‘Living Will’ contingency documents, it needed to be noted that the pool of suppliers was shrinking.

It said: "A contingency plan in case of failure relies on there being other suppliers who could step in if a company collapses.

"The knock-on effects of Carillion’s collapse are yet to be fully understood. We need to be clear about the real costs to the public purse of the government’s management of the collapse and understand the impact on Carillion’s supply chain and the SMEs it sub-contracted to."

The report made 22 recommendations for how government should improve it relationships with strategic suppliers.

Labour MP Meg Hillier who chairs the committee said: "We have identified a need for government to be more assertive in shaping the markets in which it operates, with a renewed focus on driving value for taxpayers’ money.

"It must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs."

She said it was crucial that procurement best practice was applied across all departments.

Hillier added: "For example, there must be clearer specification of contracts, properly scoped, so that when any deal is signed there is an agreed understanding between government and supplier of what is being paid for, and over what timescale."

The 22 recommendations

  1. We recommend that the Cabinet Office upgrade its ‘playbook’ and other guidance to the status of mandatory requirements.

  2. We recommend that the Cabinet Office develop an approach to examining the market to provide it with better intelligence on the motivations and intentions of companies currently bidding for central government work.

  3. We recommend that the government considers a project bank account approach and reviews the impact on small business. We expect the government’s proposals for supporting SMEs to include measures to address: delays in payment, retention payments, preferred supplier discounts, increasing the use of project bank accounts, reducing the barriers to the direct bidding to government and supporting consortia bidding.We recommend that the government consult with SMEs on the most appropriate way to incorporate these measures into contracts

  4. We recommend that government set out how it will improve the reciprocal due diligence between the government and its suppliers. government has a right to assure itself that a company is competent and capable of delivering the contracted service. The company also has a right to expect the government to specify accurately what service it is contracting.

  5. Standard contracts, which are beginning to be used by government, should be used widely. Standard contracts should be designed to make it easier for SMEs to bid and make it clearer where variance occurs.

  6. The government must ensure that the procurement process for more complicated projects includes a comprehensive sensitivity analysis and scenario planning.

  7. Government should look at the lifetime cost and value of a contract, not just the bottom line at the point the contract is commissioned. Government needs to get better at managing contracts through their life. To do this it needs to facilitate significant uplift in skills

  8. Government should consider using a partnering model, as used in construction to create co-dependent relationships, for major, risky contracts to incentivise suppliers to deliver effectively alongside government, and to ensure government has proper oversight and skin in the game on vital public services

  9. There is an attitude that money can be made from contract variance–so that when data is wrong at the outset this can be a way to boost income on a low margin contract. In the middle of this game, the user of the service too often loses out.

  10. Departments should provide the Cabinet Office with a request to enable extensions for contracts. That request should set out the reasons for requiring the extension, the analysis of the benefits of extending rather than rebidding, and an analysis of the performance over the course of the contract and record of performance across all of the company’s public-sector contracts.

  11. We recommend that there be an expectation of including a social value evaluation in government procurements and that contracting bodies provide the Cabinet Office with an explanation if they wish to remove the provisions.

  12. Government should, as part of every procurement tender, require plans to add social value and ensure social value is a weighted criterion for contract awards

  13. Government should enshrine winning bidders’ social value commitments into contracts and agree appropriate KPIs for monitoring delivery.

  14. We recommend the government include terms in their standard contracts that provide assurance that the company has appropriate corporate governance and corporate social responsibility policies in place.

  15. Government needs to step up its skill development within departments so that contracts are specified better from the outset

  16. We concur with their recommendation that the Cabinet Office establish a contracting centre of excellence that can collect best practice and learning and disseminate it across the wider public sector including the NHS and local government.

  17. Cabinet Office should ensure Departments adhere to Cabinet Office guidance and are required to respond to Cabinet Office challenge for large procurements. Where Departments want to deviate from Cabinet Office guidance, they should write to Cabinet Office ahead of opening a tender, setting out their justifications for that deviation.

  18. We recommend that the Cabinet Office review the Strategic Supplier Management Policy and its application. If RAG ratings are to be of use they need to be applied consistently and based on objective assessment. The Cabinet Office should consider whether it is appropriate that a supplier can appeal against a rating.

  19. The Crown Representative system is at risk of under-resource and high staff turnover. The Cabinet Office should consider how to make the role sufficiently attractive to attract and keep individuals of an appropriate calibre.

  20. The government should consider appointing an independent commissioner to provide independent assurance that suppliers are being held to the same standards across government.

  21. In response to this report, we expect the government to provide more detail about how the policy [a requirement for suppliers to produce ‘Living Will’ contingency documents] will be implemented; what the documents would contain; and how their contents would be scrutinised, assured and kept up to date.

  22. More complex contracts are more likely to go wrong. We would expect the Cabinet Office to consider the burden of creating and maintaining the living wills and balancing that burden with the complexity of the project and the risk and impact of contract failure.