Carillion and outsourcing: Cost versus accountability and loyalty

“The collapse of Carillion has exposed “fundamental flaws” in government outsourcing, which is obsessed with costs and is damaging public services, a review by the Commons public administration committee has found.

Carillion, a private construction company, that was one of the government’s biggest contractors, collapsed in January, raising fears about the future of hundreds of its projects for HS2, schools, prisons, the NHS and the armed forces, and 20,000 UK jobs.

The government refused to bail out Carillion but said that it would provide the funding to maintain all of the company’s public services when it went into liquidation. Its failure revived a crisis of confidence in government’s reliance on the private sector to deliver public projects and shone a spotlight on the efficiency of government spending on private firms. The government spends £251.5 billion a year on outsourcing.

That spending has been criticised as unclear and ineffective by the public administration and constitutional affairs committee in a report into government outsourcing released today. “It is unclear how and why the government decides whether to outsource a particular service. The government needs to move quickly to improve public confidence in the competence of its commercial abilities,” the parliamentary report said.

The committee, which is chaired by Sir Bernard Jenkin, has called on government to provide greater transparency on how it awards public sector contracts after it discovered deals had been done based on incorrect data.

It found that the government has had to renegotiate more than £120 million of contracts since 2016 to ensure public services would continue after initially pushing providers to offer unsustainable prices.

Sir Bernard accused the government of using “thin or non-existent” evidence to support decisions to outsource contracts and said it did not understand the risks it was pushing on to contractors. “It has accepted bids below what it costs to provide the service, so the contract has had to be renegotiated,” he said. “The Carillion crisis was well-managed, but it could happen again unless lessons are learnt about risk and contract management.” In its report, the committee accused the government of prioritising spending as little money as possible while forcing contractors to take “unacceptable” levels of financial risk.

“Ultimately this has led to worse public services as companies have been sent a clear signal that cost, rather than quality of services, is the government’s consistent priority,” it said.

The report questioned the rationale behind the belief that outsourcing provides a better service for less public money and said that ministers could not provide evidence that this was true.

A Cabinet Office spokesman said that the government had announced a wide package of measures to further improve how it works with its vendors.

“This includes extending the requirements of the Social Value Act in central government to ensure all major procurements explicitly evaluate social value where appropriate, consulting on improvements to the prompt payment code, as well as measures to make the outsourcing process more robust and the results more transparent.

“We will respond formally to this report in due course.”

Source: Times (pay wall)