Just 31 per cent of public contracts have open-book clauses

30 June 2015

The Public Accounts Committee (PAC) has supported calls for the UK government to obtain better information on how much its outsourced public services cost suppliers.

A report from the National Audit Office (NAO) published today has examined the information government uses to manage its contracts, including information it gathers on its supply chain and information it shares with suppliers on the costs and profits of a specific contract.

The NAO survey found just 31 per cent of contracts with spend of more than £1 million had an open-book clause.

In its report, Open-book accounting and supply-chain assurance, the NAO said it wants the government to negotiate greater access to information about how much outsourced public services are actually costing suppliers and how much profit they are making.

Open book clauses are more likely to be used in larger contracts. For 2013-2014, 65 per cent of deals worth between £10 million and £50 million had open book, compared to 25 per cent of contracts of between £1 million and £10 million.

The report recommends every major contract should have a strategy to collect and use this information, and that every government department should have a policy on when it will use open-book accounting. Only 23 per cent of government organisations currently have this, according to the NAO.

The NAO said that as suppliers complain the government asks for data in a variety of different formats, the Cabinet Office should set up a task force to establish a common standard for open-book data. It said there should also be better guidance for interpreting suppliers’ costs and profits, adding that the government should negotiate the retro-fitting of open-book access rights into old contracts, where appropriate.

“Contract management is not a desk job,” said Amyas Morse, head of the NAO. “We are reminded of this in all the best practice and the worst failures we see. For government to be accountable for contracted out public services, for it to understand its suppliers, for it to exercise oversight, and for it to promote value for money, it requires its contract managers to take a ‘hands-on’ approach and to go and see for themselves what their suppliers are doing.”

Meg Hillier, Labour MP and recently elected chairman of the PAC said the NAO was right to call for the government to access and make better use of information on how much it really costs for outsourced suppliers to run taxpayer funded public services.

“I imagine the public will be surprised to discover this kind of information is currently only available for 31 per cent of public sector contracts. The fact that in most cases the government does not know how much profit is being made by outsourced companies from public services suggests government needs to move forward its thinking on this," she said.

David Noble, group CEO, CIPS, said: "Increased transparency can only ever be a seen as a positive move and we strongly encourage a more responsible approach to managing major supplier contracts. Open-book accounting will aid the government to fully scrutinise contracts to get a true understanding of the cost of supply, and how profitable public sector contracts are to major businesses.

"However, it will require a significant shift in culture as well as the development of a new skill set for many procurement teams in the public sector, and highlights the need more than ever for more professionally qualified procurement people in these roles.”

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