New government rulebook ramps up scrutiny of outsourcing risks following Carillion collapse
Formal reform plan published as Serco chief says outsourcer has recovered from “dark night of the soul”
Government outsourcing proposals will face increased scrutiny of the risks of moving services out to private providers under the first strategic reform plan for the sector since the collapse of Carillion.
The Outsourcing Playbook published by the Cabinet Office yesterday set out a number of new policies intending to help departments make better outsourcing decisions and deliver better public services.
Among the changes set out in the framework is a proposal for all risk allocation decisions taken during outsourcing decisions to be “subject to greater consideration and scrutiny” and for new reviews for outsourcing deals similar to major infrastructure projects.
The document said inappropriate risk allocation, which makes suppliers responsible for elements of service provision that are not in their control, “has been a perennial concern of suppliers looking to do business with government and a more considered approach will make us a more attractive client to do business with”.
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In a report last year, the Public Administration and Constitutional Affairs Select Committee highlighted “several instances” where the government has contracted with the private sector without knowing key data about the services it was asking companies to bid for. The playbook said ensuring that risks are not shifted to suppliers who cannot deal with them was “a key area of discussion with prospective suppliers”.
Under the new plans, proposals for risk allocation should be subject to extensive scrutiny before tenders for outsourced services are released, including sharing of risk registers with prospective suppliers.
This will ensure that the government is able to identify, quantify and allocate risks, according to the Cabinet Office, with departments specifically told to “not ask suppliers to take unlimited liabilities”. This is also intended to ensure that suppliers are able to better price bids.
Project reviews expanded to outsourcing
The new rulebook also sets out reforms for all complex outsourcing projects to go through a full project validation review. Currently, only major government infrastructure and transformation projects are required to go through a PVR assurance review, but the new rules will mean all “complex outsourcing projects” will be subject to this gateway review to “bring together the full weight of cross government expertise at the early stages of the project”.
There is also a new requirement for all moves to outsource services for the first time to be trialled, and for new plans to be subject to “new make versus buy” assessments.
“Piloting a service delivery model is the best way to understand the environment, constraints, requirements, risks and opportunities. Pilots also provide a wealth of quality data and can help inform the drafting of technical specifications,” according to the document.
“It’s about behaviour and it’s about suppliers not idiotically promising that they can do things that they can’t and taking on risks that they can’t manage, and it’s about government being more measured about the risks that it passes on to suppliers" Serco chief executive Rupert Soames
The playbook formalises a host of policy announcements that had had been made by Cabinet Office minister David Lidington following the collapse of Carillion last January.
In June, he said that the government would change its procurement rules to include “social value” in all assessments of providers for government work, and to require the publication of key performance indicators – such as response rates, on-time delivery and customer feedback – for critical contracts. Then in November he announced plans to further increase transparency, including the development of so-called living wills for major contracts that set out how services could be managed in the event of a corporate failure.
The playbook set out more details of a number of these reforms, including more rigorous assessment of the economic and financial standing of suppliers and the development of KPIs. These will need to be developed for all new outsourcing projects and will include performance measures that are relevant and proportionate to the size and complexity of the contract. The playbook states that “in line with the cross‑government transparency agenda, three KPIs from every new outsourcing contract will be made publicly available”, although there could be more than three key indicators for projects.
The indicators selected for publication “should be the three most relevant to demonstrating whether the contract is delivering its objectives, and they should be measured regularly”. They should focus on delivery to the end user, not management information required by contract managers.
‘Outsourcing is under intense scrutiny’
In his foreword to the report, civil service chief executive John Manzoni acknowledged that “government outsourcing is under intense scrutiny”.
He said: “The collapse of Carillion in January 2018 and the ongoing difficulties of some companies in the outsourcing sector, has put both our decision-making processes and the contracts we award firmly under the microscope.
“In March 2018, we completed a study of what we outsource, why we outsource and how we outsource. The study concluded that when done well, the private sector can bring efficiency, scale and fresh thinking to the delivery of public services.”
Manzoni said “outsourcing companies themselves have collaborated fully and wholeheartedly with this work”.
CSW previously revealed that the Cabinet Office had been running “an outsourcing study group" with suppliers that Gareth Rhys Williams, the government’s chief commercial officer, said had "come up with a number of really good recommendations that I think will make our contracting group better, more robust and more resilient”.
Manzoni said that “jointly, we have identified the challenges associated with delivering public services and agreed the reforms that will set the conditions for healthier practices in the future.”
He highlighted that these reforms have been encapsulated in 11 key policy changes in the playbook.
Others include: publication of commercial pipelines; undertaking market health and capability assessments, modelling how much a service should cost before outsourcing, considering the best pricing and payment mechanisms and planning for resolution – both in the form of living wills if the contract goes wrong and when the contract term ends.
Responding to the announcements in an interview on the Today programme on Radio 4, Serco chief executive Rupert Soames said that the collapse of Carillion “turned what I and others were saying – that the market was broken – from being seen as just supplier whingeing into a serious problem”.
He said that the company, which had financial problems in 2014, had “had our dark night of the soul” and he said suppliers as well as Cabinet Office had to get smarter.
“It’s about behaviour and it’s about suppliers not idiotically promising that they can do things that they can’t and taking on risks that they can’t manage, and it’s about government being more measured about the risks that it passes on to suppliers,” he said.
Civil Service World's parent company Dods is holding an event reviewing the fallout from the Carillion collapse. After Carillion: the future of public sector insourcing and outsourcing, will be held on 14 March in London. CSW readers save 20% on a place by using promo code ‘CSWMARCH2019’
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