Private contractors - Government must get house in order

14 March 2014

Public Accounts Committee publishes its 47th report into Private contractors and public spending at 00.01am, Friday 14 March 2014.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Private provision of public services has become big business, with half of all public spending on goods and services going to private providers of contracted-out services. We believe Government needs to urgently get its house in order so that this expenditure is properly open to public scrutiny, and that measures are put in place which will improve services and secure a better deal for the taxpayer.

Recent scandals illustrate the failure of some contractors to live up to expected standards. These include the astonishing news that G4S and Serco had been overcharging the Ministry of Justice on their electronic tagging contracts for eight years, including claiming for ex-offenders who had actually died – and the complete hash that G4S made of supplying security guards for the Olympics.

These failures have also exposed serious weaknesses in the Government’s ability to negotiate and manage contracts with private companies on our behalf.
We looked at Serco’s misreporting of the performance of its out-of-hours GP services in Cornwall, where the contract was so poorly written that not only did Serco not lose the contract, but they continued to receive bonus payments. When Capita failed to fulfil its contract to provide court translation services it was fined a mere £2,200 - despite the substantial extra costs to the criminal justice system of delayed trials.

There is a lack of transparency and openness around Government’s contracts with private providers, with ‘commercial confidentiality’ frequently invoked as an excuse to withhold information.
It is vital that Parliament and the public are able to follow the taxpayers’ pound to ensure value for money. So, today we are calling for three basic transparency measures:

  • the extension of Freedom of Information to public contracts with private providers;
  • access rights for the National Audit Office; and
  • a requirement for contractors to open their books up to scrutiny by officials
The four private contractors we met – G4S, Atos, Serco and Capita - all told us they were prepared to accept these measures. It therefore appears that the main barriers to greater transparency lie within Government itself.

An absence of real competition has led to the evolution of privately-owned public monopolies which have become too big to fail. Some public service markets such as for private prisons, asylum accommodation or disability benefit assessments, are now controlled by just one or two major contractors.

Small and medium enterprises (SMEs) have been crowded out by the complexity of the contracting process, excessive bureaucracy and high bidding costs.
Government should require higher ethical standards of private providers than have sometimes been displayed in the past. For example, Departments should ensure their contractors  have proper whistleblowing processes in place. 

With the Government choosing to contract out more and more public services to the private sector, these issues become ever more important. This report is intended as a recipe for better services, better governance and greater openness. We hope the Government will take heed of our recommendations."

Margaret Hodge was speaking as the Committee published its 47th Report of this Session which, on the basis of evidence from Atos, Capita, G4S, Serco, the Cabinet Office, the Department of Health, the Ministry of Defence and the Ministry of Justice, examined the contracting out of government services.

More and more public services are being contracted out to private and voluntary providers. Government spends £187 billion on goods and services with third parties each year, around half of which is estimated to be on contracting out services. Government retains responsibility for ensuring value for money and we, on behalf of the taxpayer, need to be able to follow the taxpayers’ pound, wherever it is spent.
This report brings together evidence from two hearings on contracting out government services, which we held on the basis of reports by the National Audit Office (NAO). In the first hearing, we heard from four major government suppliers: Atos, Capita, G4S and Serco. Between them, they held government contracts worth around £4 billion in 2012-13. In the second hearing, we took evidence from the Cabinet Office (which is responsible for how government manages its suppliers), the Department of Health, the Ministry of Defence and the Ministry of Justice.

Government is clearly failing to manage performance across the board, and to achieve the best for citizens out of the contracts into which they have entered. Government needs a far more professional and skilled approach to managing contracts and contractors, and contractors need to demonstrate the high standards of ethics expected in the conduct of public business, and be more transparent about their performance and costs. The public’s trust in outsourcing has been undermined recently by the poor performance of G4S in supplying security guards for the Olympics, Capita’s failure to deliver court translation services, issues with Atos’s work capability assessments, misreporting of out of hours GP services by Serco, and most recently, the astonishing news that G4S and Serco had overcharged for years on electronic tagging contracts: these high profile failures illustrate  contractors’  failure to live up to standards expected and have exposed serious weaknesses in Government’s capability in negotiating and managing private contracts on behalf of the taxpayer.

There is significant scope for government to improve its approach to contracting for public services. The Cabinet Office told us that there is a long way to go before government has the right commercial and financial skills to manage contracts and it needs to use the full range of powers at its disposal.  For example, the Cabinet Office told us that only a third of contracts are on an open-book basis and, even then, departments rarely use the access provided and have a shortfall in the capability required to do so.

The contracting process at present excludes SMEs, and therefore the innovation which could be generated by a wider group of suppliers is not available to Government. So far, the contracting out of services has led to the evolution of privately-owned public monopolies, who largely, or in some cases wholly, rely on taxpayers’ money for their income. The state is then constrained in finding alternatives where a big private company fails. We intend to return to this issue. The Government should also require Accounting Officers to take responsibility for and show leadership in relation to contract management. One of the consequences of devolving this role to relatively junior officials is they regard contract management as an exercise in catching people out, rather than working closely with contractors to improve the quality of services.

The four Government contractors we met all accepted they needed to be more open and held to public account. They accepted that open-book contracts should be the norm. They also accepted that the NAO should have access to all the relevant information associated with contracts with the public sector. And they were content that Freedom of Information provisions should apply to public sector contracts with their companies. Since the contractors confirmed that they would agree to these changes it appears that the barriers lie instead with government itself. The Cabinet Office told us that publishing information in full on large contracts such as the Work Programme may present a burden for suppliers, but that in principle this information should be made available.

We welcome the cooperation received from Atos, Capita, G4S and Serco, both in supplying the NAO with data for its reports and in giving us constructive and candid evidence for our hearing. That spirit of cooperation and openness needs to be sustained and apply to all private contractors that provide public services.

We are pleased that both the private contractors and government recognised the need for improvement: by government in its handling of contracts; and by the private sector contractors in recognising their responsibilities to parliament and to the taxpayer for the proper management of public service contracts.  In this report, we set out five areas where the government and private contractors have fallen short in the past, and we make associated recommendations for improvement.

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