6 August 2013 | Will Green
Public procurement has hit the headlines for all the wrong reasons. Will Green examines the fallout.
It’s been said that bad news often come in threes, and last month this was true for procurement professionals in Whitehall.
First, justice secretary Chris Grayling announced he had replaced a contract management team in the wake of allegations of over-billing for electronic tagging services.
The dust had barely settled on that when a report arrived from the Institute for Government (IfG), which concluded that civil servants “lack the expertise to design and manage complex contracts effectively”.
To cap the trio, MPs on the Public Administration Select Committee published the findings of their investigation into public purchasing, pointing to “systemic weaknesses” and suggested that full centralisation may be the only answer.
The trouble began when Grayling got to his feet in the House of Commons. It soon emerged that, following an audit, G4S and Serco had been found to be billing for electronic tagging services for offenders who were back in prison, had never worn a tag, had left the country and, in some cases, had died. The situation had been going on since at least 2005, and possibly 1999, and taxpayers were out of pocket to the tune of “tens of millions of pounds”.
Grayling described management of the contracts as “wholly inadequate”, telling MPs that “issues” around contract billing had emerged in 2008 but “nothing substantive was done”. He added the permanent secretary has begun disciplinary investigations to see if there was evidence of any staff misconduct.
Exactly how the situation arose and the processes now under way are not clear at this stage as the Ministry of Justice (MoJ) is remaining tight-lipped on the subject. What is known is the contract management team concerned at the National Offender Management Service has been “removed” and replaced with a new squad led by the procurement director.
A full review of contracts held by Serco and G4S across central government – worth an estimated total of £1 billion in 2012/13 – is also taking place. Serco has said it will “cooperate fully” with any investigation and pay back any monies agreed. G4S says it is conducting its own enquiry and will pay back cash if evidence of over-billing is discovered, but it points out that there is “no evidence of dishonesty”.
Yoon Chung, a public procurement specialist at PA Consulting, says the complexity of the contracts with Serco and G4S might be the source of the trouble, as it creates pitfalls for those on both sides of the deal.
“If you’re both working in big organisations this sort of thing could fall through the net. If the contract is not clear the bureaucracy might take it over,” he says. “You could end up with a situation like Serco and G4S – the contracts were so complex there was room for lax accounts.
I would not be surprised if the definition of payments – when you stop getting paid – could be something to do with it.
“There should be more analysis about what the supplier is doing. Checking invoices is something you should always do as a good contract manager. If the contract is not clear you should spot that earlier and agree with the supplier what they can and can’t do.”
While Serco has bowed out of the tendering process for the next generation of tagging contracts, Grayling said he was “disappointed” that G4S had not done so. But if neither firm takes part in the tendering process, how many other suppliers are out there to make the process truly competitive?
Chung recommends encouraging smaller players into the outsourcing market by cutting red tape, though he believes high risk areas like prisons should be the preserve of a single supplier because “the amount of risk is significant”.
Peter Holbrook, chief executive of Social Enterprise UK, says there will be alternative large providers “waiting in the wings”, but he believes all government contracts should be broken up and localised as much as possible.
“The really important public services that develop into markets have been dominated by a very small group of very large companies,” he says. “It limits the government’s opportunity to choose among providers. I would argue for much more localised approach. If you are going to create markets that function well you have to ensure small organisations can enter those markets.”
The IfG appears to be on the same page, calling for an “urgent cross-government review” to “ensure public service markets are truly competitive and not dominated by a few providers”, while a “competition impact assessment” should be published ahead of any outsourcing programmes that are worth more than £100 million.
Tom Gash, IfG director of research, says: “It’s important that contracts are competed for by a number of different providers. The problem that the MoJ faces is there are very few with experience of electronic tagging who are competing for the next round of contracts. That has lessons for other contracts.”
Gash says relationships are at the heart of good contract management. “You have to develop a package that you can constantly gain information from on what’s happening,” he says. “You need a relationship with the provider and constant dialogue about these things. It’s much better to resolve these things in a sensible way than to have massive headlines.”
Nick Faith, of the think tank Policy Exchange, calls for more private sector nous in government. He says the challenge government faces is “how do you get professional procurement officers seconded into Whitehall from the private sector?”
“It’s far too generalised. The civil service needs to become more specialist, especially on contracts,” he says. “Civil servants forget that companies are there to make as much profit as possible and they need to be aware of that when they set the parameters on contracts.
“People from the private sector with experience of dealing with those things will have more nous in dealing with contracts.”
‘Not everyone’s cup of tea’
The announcement of the new Crown Commercial Service (CCS) has received a lukewarm reception in some quarters. The centralised procurement organisation will be responsible for approximately £10 to £12 billion of spending on a range of goods and services.
Social Enterprise UK reports that the new body is likely to act as a barrier to new entrants to the government outsourcing market. Chief executive Peter Holbrook says: “In 2010, the prime minister made a commitment that at least 25 per cent of government work would go to SMEs. We know it’s currently 6 per cent or thereabouts. We have not seen an increase since 2010 in the number of contracts going to smaller organisations.
“The concern around the centralised procurement model is SMEs find the process of bidding complex and incredibly costly. There’s a real problem around complexity and affordability and the central procurement model doesn’t address those two issues.”
A spokeswoman for the Cabinet Office said direct spend to SMEs was 10 per cent, adding: “The CCS will be a positive force for SMEs by ensuring there remains a focus on helping smaller suppliers to compete for public sector business.”
Yoon Chung, a public procurement specialist at PA Consulting, says: “The description of the CCS appears to be very similar to what the government procurement service has been doing for years.”
But he welcomed the possibility of a chairman from the private sector, though he warned civil service culture “is not everyone’s cup of tea”.