Government needs more robust processes at the start of outsourcing to ensure contracts are structured right, the head of the civil service has said.
John Manzoni, chief executive of the civil service, said one of the big lessons from the collapse of Carillion needed to be that government should put the processes in place to make sure contacts are not transferring too much risk to suppliers.
Speaking in front of the Public Accounts Committee (PAC) yesterday, Manzoni said: “One of the big lessons and one of the big actions out of what happened with Carillion has got to be – we need a more robust process upfront.
“That process needs to be sure that we’ve got the structure of the contracts right, it needs to be sure that we’ve got the risk sharing right, it needs to be sure the contractor can structure that contract inside his or her company.”
Manzoni was giving evidence to the PAC as part of the committee’s investigation into how the government manages its strategic suppliers, launched in the wake of the sudden collapse of Carillion earlier this year. A previous report released by the PAC criticised the traffic light risk rating system for being “slow and clunky” and missing opportunities to deal with problems within the business.
Asked about complaints strategic suppliers had made to the PAC about government contracts transferring an unfair amount of risk, Manzoni said: “They’ve got a point. There are certain risks that only government can take and we need to be better at recognising what those are and not trying to outsource them.”
He also said that while government bodies were having “much more intelligent conversations” with strategic suppliers, government “shouldn’t be satisfied” with its relationship with the private sector.
“We should never be satisfied with it, but I’m not satisfied with it and I don’t think the team [at the Cabinet Office] is satisfied with it. But we’re better than we were,” he said.
Gareth Rhys Williams, chief commercial officer at the Cabinet Office, who was also giving evidence to the PAC, said departments were still under “extreme pressure” to deliver savings and this was creating a tension between the price and the sustainability of contracts. Departments are having to weigh up the immediate cash savings of reducing the price of a contract against the risk a supplier will ask to renegotiate or start reducing the services they provide.
He said: “It’s a balance of risk. We think, ‘This [contract] is quite close to generating a loss-making situation for a vendor. That will either mean they will come back asking for more money later – bad – or they trim services fairly soon – bad – but it delivers cash savings for the department now – good.’”
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