His review, which is based on 28 contracts held with G4S and Serco by eight departments, , identifies weakness in the majority of contracts regarding managing performance, payments and incentives, as well as planning and governance.
Crothers (pictured above) examined contracts worth more than £5.9bn in total, and concludes that “the way many of the government’s important contracts are managed is inadequate” and adds that “allowing this situation to continue is not an option”.
His review identifies “deficiencies in key controls being applied to the invoice and payment processes”, resulting in a risk of over-charging and says that in most cases there is a “general over-reliance on supplier’s self-reporting their performance with insufficient verification checks being performed by the department”.
The review, which was published yesterday, calls for the underlying issues around financial controls and contract management to be “rectified quickly” and recommends eight measures. Six of these propose additional or strengthened responsibilities for the CCS, Crothers’s Cabinet Office unit.
The CCS will oversee departments’ contract management plans in the same way the Major Projects Authority scrutinises departments’ projects: CCS will sign off any major contract, previously approved by the department’s commercial director, before it can be awarded.
It will be able to “step in” on the management of any major contracts within departments when it thinks intervention is required. The CCS will also develop “a strong contract management capability” in order to set “general standards, guidelines and checklists for best-in-class contract management” as well as to “provide expert advice to departments on request”.
Other recommendations include a call on departments to strengthen their internal audit (IA) capability so “that IA can lead internal contract reviews of the department’s major contracts in response to specific requirements”.
While Crothers’s review focussed on only G4S and Serco contracts, the issues identified are “pertinent to the management of all major contracts; the findings and themes are generic and are therefore not restricted to the two suppliers”, according to the report.
Minister of the Cabinet Office, Francis Maude, has accepted the report’s recommendations in full and said that “the review underscores the urgent need to address these longstanding weaknesses and we will redouble our efforts to do so”.
The Ministry of Justice, which also published its own review into 15 contracts with the same suppliers yesterday, found that the MoJ relies too heavily on the accuracy of suppliers’ key performance indicators and “does not provide enough challenge”.
The MoJ review, which was led by Tim Breedon, a non-executive on the departmental board, also warns that the ministry does “not have sufficient understanding of its own duties in delivering end-to-end services” and that there is a risk of services “not being delivered on account of MoJ not carrying out essential activities for which it is responsible”.
Other findings include inconsistent control over the invoice process, insufficient communication and collaboration as well as a “lack of appetite” to continuously improve its contract management.
The report calls on the MoJ to lay out its future requirements for contract management and then “assess the extent to which new structures may be required”. This assessment, according to the report, should examine key areas of organisational design including governance, strategy, technology and contract management processes and assurance.
The recent findings will make worrying reading for the civil servants, probation trusts and service providers working on the MoJ’s ambitious and tightly-timetabled plan to outsource most lower-risk probation work.
Another major MoJ contracting-out project, covering court interpreters was heavily criticised by select committees – with the MoJ eventually recognising serious flaws in the planning and commissioning process (see Interview: Ursula Brennan)
Following the review, justice minister Chris Grayling announced that Serco is to repay the government £68.5m plus VAT for overcharging it on the electronic monitoring contract as well as for other costs, including the cost of the investigation.
He said that while there is currently no evidence that “dishonesty has taken place”, both companies have been referred to the Serious Fraud Office “in order to establish whether this is the case”.
See also: Perm Secs’ Round-Up: Stephen Kelly, Chief Operating Officer for HM Government