Tom Gash of the Institute for Government: An end to bungled private sector deals?

Written by Tom Gash on 10 February 2017 in Opinion

Proper management of outsourced services is the only way to avoid the contracting fiascos of recent years, argues the IfG's Tom Gash

Anyone working in today’s civil service should be aware that vast swathes of government services are in some way supported by private companies and voluntary sector organisations. Tax and benefits systems are maintained by myriad private sector IT businesses. Government departments almost universally rely on contracted suppliers of payroll, energy, facilities management and consultancy services. Private companies build vital UK infrastructure, run the trains and buses, and deliver or support public services. Charitable academy trusts run the majority of England’s secondary schools, and it is private enterprises that deliver the bulk of English and Welsh probation services and help the UK’s long-term unemployed back into work. 

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The performance of these vital services depends on the performance of individual service providers. But it is arguably as heavily influenced – or more – by the ways in which the government designs and manages contracted services. People suffer when the government underfunds or overpays providers, sets perverse incentives, gives work to incapable organisations, or fails to ensure users can have a say in the services they receive.

The government’s record in managing private and non-profit providers is, of course, mixed. The 2012 London Olympics only achieved the success it did because of effective contracting for complex construction, technology, sales and marketing services. But such successes came alongside difficulties in assembling the world’s biggest ever contract for temporary security guards. G4S failed to deliver on the government’s frequently changing requirements, and the armed services had to save the day.

According to Institute for Government and National Audit Office research, such problems are often the result of systematic weaknesses in the government’s default approach to engaging private and non-profit suppliers. Underlying problems include: failure to consult those with commercial expertise when designing policies and programmes; inadequate investment in the ongoing management of contracts, suppliers and markets; and patchy capability in government procurement, contract management and commissioning. In addition, senior policymakers and operational leaders often lack expertise in getting the best from commercial staff.

The government is now aware of these problems and taking steps to address them. There have been reforms within individual departments and 2016 saw a refreshed drive to improve commercial capability. Gareth Rhys Williams was appointed as chief commercial officer in March 2016 and has been tasked with leading the set-up of the Government Commercial Function. Commercial directors are working with him to design a set of reforms aimed at improving recruitment, retention, development, deployment and support of commercial professionals. 

The details of the changes are set out and assessed in a new IfG report, published this month. To oversimplify grossly, we find that the reforms are focused on the right issues and represent a welcome recognition that the government cannot deliver on manifesto commitments without effectively developing and deploying specialist skills – not just in commercial disciplines, but in areas such as finance, digital and project management too. 

They also show the government is finding ways to reduce duplication of effort across departments. For example, two departmental commercial directors have led work to design new “government commercial standards”, which will be used by all departments to assess whether their commercial capability is improving.

Thankfully, the reforms focus on supporting departments to deliver, not on centralising. The current plan involves employing most senior commercial specialists through a new Government Commercial Organisation, within the Cabinet Office. This a virtual entity created to allow these staff to benefit from slightly more favourable terms and conditions and stem the ebbing of talent away from the government. The vast majority of commercial specialists will continue to be embedded in departments, supporting the delivery of priorities, and there are no plans to expand the role of the Crown Commercial Service, which currently procures common goods and services for the government.

It is too early to say if the reforms will succeed. Whitehall’s departments – accountable to individual secretaries of state – still need to be convinced of the ability of any reforms led by the Cabinet Office to support them in their work, rather than simply adding to it. 

Efforts to build commercial expertise also need to be matched by changes that encourage and enable operational and policy staff to better use the commercial capability that exists. And perhaps most importantly, there is a leadership challenge. Ministers currently show a relative lack of interest in this agenda, despite the fact that a third of government resources are spent on goods and services from companies and charities. So it is up to those in the civil service to champion reforms in the face of multiple competing pressures, including the work required to prepare for Brexit.

Current plans can, and should, be refined as leaders learn what is working, but commercial capability is simply too important to the performance of the government to fail. New IfG polling conducted by Populus shows that 53% of people think that when something goes wrong with contracted public services, no one takes responsibility. It is time for the civil service to prove them wrong. 

About the author

Tom Gash is a senior fellow at the Institute for Government

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