The Committee on Standards in Public Life thinks it knows how to halt the seemingly endless scandals about outsourcing. Report by Colin Marrs. Illustration by John Levers
Outsourcing is now very firmly entrenched within government: the National Audit Office estimates that central government spent £40bn with third parties in 2012-13. And it’s growing fast: a study by outsourcers Arvato found that 39 contracts worth £2.1bn were agreed in the first quarter of 2014 – a rise of 65% in value over the same period last year.
As the number of outsourcing schemes grows, however, government can’t afford to see a proportionate rise in the numbers of service delivery failures and cases of abuse: these problems attract keen media attention, increasing public suspicions and putting the coalition’s outsourcing programme at risk. A report published last month by the Committee on Standards in Public Life (CSPL) argues that the poor performance of some suppliers demonstrates the need for action to ensure ethical behaviour throughout our public services.
The report calls for third party suppliers to be held to the same ethical standards as the public sector, meaning those set down by the committee in its first report in 1995: selflessness, integrity, objectivity, accountability, openness, honesty and leadership. Speaking to CSW, committee member Dame Sheila Drew Smith says that amongst the civil servants commissioning third parties “the principles have been implicitly understood, but not taken seriously enough in outsourcing arrangements.”
The committee’s conclusions were informed by a survey of public attitudes by pollsters Ipsos MORI. This found evidence that the public wants to see equal ethical standards, strongly enforced, among all those providing services.
Ipsos MORI also interviewed commissioning bodies, finding that although they understand the importance of supplier conduct, there are few examples of ethical standards being explicitly incorporated into selection processes, contractual arrangements or monitoring. The committee believes departments tend to assume that providers will act ethically, and that “the primary focus of commissioners appears to be on cost and outcomes – the ‘what’ and not the ‘how’”.
The report dismisses objections raised by suppliers that European Union procurement rules prohibit the incorporation of ethical requirements into selection or contractual arrangements: “We are clear that ethical considerations can and should be taken into account where – as must usually be the case – they are relevant to the subject matter of the contract and delivery of the service,” it says.
In a series of recommendations, the CSPL report calls for ethical standards to be formalised through “proportionate” contractual and monitoring arrangements for those delivering outsourced public services. It concludes: “We accept it is inherently difficult to contract for values and culture. But we believe we can build on existing mechanisms, many of which will already be present in organisations delivering these services, to prompt and promote ethical behaviour.”
The suppliers’ conformity to the seven principles should, the report argues, be enforced through contracts, with providers required to demonstrate they have structures and arrangements in place to support them. Meanwhile, the crown representatives should champion high ethical standards in their relationships with strategic suppliers, and advise ministers on progress.
Accounting officers in Whitehall should “actively seek assurance” that public money is being spent in accordance with ethical standards, CSPL argues, and be required to carry out annual certification of their department’s arrangements. In addition, ethical standards should become the specific responsibility of one non-executive board member of government departmental boards. And the CSPL picks up on the Public Accounts Committee’s recommendation that commissioners should conduct periodic reviews of supplier performance regimes, arguing that these should be extended to cover ethical issues.
Addressing concerns over civil service capabilities, the committee recommends that the Cabinet Office designate ethical awareness as a professional requirement for officials involved in commissioning, procurement or contract management. “We remain of the view, as we have said before, that ethical awareness must be embedded in induction, appraisal, progression, regular training and professional development to establish an ethical culture in the public sector,” says the report.
Paul Dossett, head of public sector assurance at consultancy Grant Thornton, welcomes the recommendations, but suggests that government also needs to get its house in order. “There have been examples where contracts have been let where public officials have not declared their interest in companies,” he says. “And if you look at the Mid-Staffordshire NHS Foundation Trust scandal, it is debatable whether the principles of public life were followed.” The committee’s report accepts there are failings in the public sector, but says it has “established and transparent accountability frameworks and independent external scrutiny mechanisms which exist to help identify, scrutinise and remediate failings”.
Most in the private sector are relaxed about the proposals. Jim Bligh, head of public services at the Confederation of British Industry, says any sensible business will already have suitable mechanisms in place. “A market can only work if the users have confidence and trust in it,” he says. “Shareholders want to see good performance and returns, and those go hand-in-hand with conduct.” Dossett agrees, saying that reputation is a valuable commodity in the business world: “Most companies want to build sustainable relationships, and do not want to overcharge.”
Not all are so careful. Suppliers Serco and G4S were notoriously stripped of their contracts for tagging offenders after it was discovered that they’d been overcharging for years. A Serco spokesman tells CSW that the firm is implementing a programme of organisational change which “includes measures to ensure the right ethical standards are adhered to and maintained across the group, including through the establishment of formal ethics committees and ethics officers in each division within the business.”
However, John Medhurst, policy officer at the Public and Commercial Services Union, points out that companies are obliged under company law to maximise returns for shareholders. “This provides an inherent contradiction with a number of the principles of public life,” he argues. Indeed, even some of those who welcome the report concede that not all of the principles will be easy to follow: Dossett admits that the principle of “selflessness” does not sit neatly with the profit motive.
There’s a much sharper line from Kerry Hallard, chief executive of industry body the National Outsourcing Association. She agrees that acting selflessly would be “difficult” for businesses, but calls for the government to reject the committee’s “unfair” recommendations and argues that they could burden businesses. Hallard says the report ignores the fact that most outsourcing works smoothly: “There are occasional mistakes, which receive a lot of publicity, rather than institutionalised ones.”
Another of the seven principles which might prove difficult to follow through is openness. Although the coalition has published data on its third party spending, when the Institute for Government tried to analyse the figures last month it found serious weaknesses in the data. IfG researcher Gavin Freeguard says: “This research shows how difficult it is to analyse who is contracted to provide our public services and what it costs. We hope our analysis will prompt government to improve the quantity and quality of the data it shares”.
This, of course, is not the private sector’s fault. Indeed, in March the CBI called for the publication of supplier contracts, NAO scrutiny of those contracts, open book accounting, and transparency provisions in outsourcing deals. The Public Accounts Committee would like the government to go further, making suppliers subject to Freedom of Information rules. But the coalition has been slow to pursue supplier transparency in these ways.
In the end, a focus on contractual requirements cannot address everybody’s concerns. Dossett worries that the committee’s recommendations on inserting ethical requirements into contracts miss the point. “Some of the areas where there have been failings in the past is where government bodies feel obliged to adopt a very contractual approach,” he says, arguing that it’s difficult to create contractual measures that will ensure suppliers don’t rip off government. “All of these things are highly worthy and everyone will support them, but at the end of the day it is about the two partners having an adult relationship,” he believes.
Asked for a comment, the Cabinet Office sounded open-minded about the report – pointing out that the department is “leading a commercial reform programme to drive up standards and get a better deal for taxpayers,” and adding that “good progress has been made, but there is much more to do.” A spokesperson welcomed the CSPL report, noting that it “recognises that ‘how’ things are done is as important as ‘what’ is done. Ethical standards are an important issue for the government, and we will respond to the proposals in due course.”
From the other side of the fence, shadow Cabinet Office minister Michael Dugher tells CSW: “We are actively looking at the report’s recommendations, to see how the right structures could be put in place to promote ethical standards in the delivery of public services.”
So both government and opposition are careful not to dismiss the CSPL’s recommendations. Placing a new set of contractual obligations on suppliers may or may not be the right way to improve the government’s handling of outsourcing. But it is clear to people across the political spectrum that we need a way to close off the steady trickle of stories about cheating, failing and profiteering suppliers – otherwise the politicians will see ever more damage to their outsourcing policies, civil servants to their reputations, taxpayers to their wallets, and ordinary citizens to the services on which they depend.