Crisis of confidence in the way public sector buys services from private sector, says NAO

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“Contracting with private sector providers is a fast-growing and important part of delivering public services. But there is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly, and of departments themselves not being on top of things.”

Amyas Morse, head of the National Audit Office, 12 November 2013

The National Audit Office (NAO) raised the following concerns:

1 The way contracts are awarded needs scrutinizing to ensure they are “sufficiently competitive”.

2 Whether the rise of a few major contractors is in the public interest.

3 Whether profits made by contractors “reflect a fair return”.

4 Whether contractors are delivering the expected high standard of services or whether they are just paying “lip service” to monitoring.

5 Whether large contractors have “the right culture and control environment across their group”.

6 Some large government suppliers paid little of no UK tax.

7 The Serious Fraud Office was investigating certain contracts awarded to G4S and Serco.

The Cabinet Office has emphasized the government’s relationship with contractors in line with its role as a major customer, the NAO said. It welcomes this new relationship: it’s sent a message that the government would be tough on underperformance.

Nevertheless, the NAO still identified challenges:

1 The Cabinet Office’s focus on short-term economies has resulted in savings* when contracts were renegotiated. However, the NAO warned this would become harder as time went on and risked losing out on “longer-term value for money”.

2 There needed to be a balance between being a tough negotiator and maintaining longer-term relationships with suppliers.

3 It’s hoped the development of the Crown Commercial Service would reform the Government’s commercial practice but there was a risk this ambitious programme might be undermined by insufficient resources and information.

4 The Cabinet Office had “gaps” below senior levels in commercial practice.

5 Information about the main strategic suppliers was contradictory and deficient.

£40bn of central government spending in 2012/13 was to third parties, the NAO found. A quarter of this went to the 40 strategic suppliers.

The NAO estimated the Department for Education (DfE) had spent £410m with third parties. This was less than 11 other departments. The Ministry of Defence spent the highest amount: £19,951m

This report comes 15 months after the Olympic G4S fiasco which prompted Defence Minister Philip Hammond to say the debacle showed private firms were not suited to providing many public services.

The NAO’s concerns should be seen in this light – there may be times when procuring services from the private sector is not the most suitable method of providing services.  If the government thinks private sector procurement is appropriate then it needs to ensure the contract is value-for-money and results in a high standard of service.  And it must make sure taxpayers are not being taken for a ride (see sidebar).

 

See faq above What risks did the NAO describe in its report about delivering public services through markets? for June 2012 NAO report on this subject.

*The Cabinet Office reported £840m of savings with strategic suppliers in 2012/13

 
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