The major government contractor Carillion collapsed in 2018. Photo: PA
The government spends £284bn a year – a third of public expenditure – on external suppliers delivering goods and services ranging from probation to waste collection. In 2017-18, four departments including the Ministry of Justice and the Department for Transport directed more than half their total expenditure towards procurement.
The collapse of Carillion in 2018 revealed some serious problems in the outsourcing sector. The government’s “strategic suppliers”, which until recently included Carillion, have won more and more work in recent years. Yet the three suppliers that government spent most money on in 2016-17 – Carillion, Amey and Capita – have all experienced financial difficulties.
This led to a major and necessary rethink in the way government works with external suppliers. The minister for the Cabinet Office, David Lidington, announced reforms such as “living wills” to minimise disruption in case of failure, and advocated thoroughly evaluating social value rather than merely considering it when outsourcing. The new Outsourcing Playbook sets out the government’s latest plans to improve how it outsources public services, building on major efforts to improve government’s commercial capability in recent years. It is the product of 1,400 hours of consultation between government and suppliers, covering 11 policies from engaging the market to conducting due diligence when selecting suppliers.
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The playbook includes some very welcome developments. For instance, it acknowledges the risk of bias towards low-cost bids in the evaluation process. To better balance cost and quality, the playbook requires departments to use a “should cost model” to rigorously assess the price of delivering a service before making final decisions about outsourcing it, and to refer abnormally low bids to a central team. It also mandates departments to pilot services that are being outsourced for the first time, and to think more carefully about how they allocate risk between government and suppliers. Departments will also need to carefully assess whether in-house provision or outsourcing offers the best value for money for a service. These measures should enable government to get better value for money for taxpayers and help safeguard the delivery of public services.
However, there are areas in which government needs to go further to address the concerns raised by Carillion’s collapse. The playbook focuses mainly on services, but it is not mandatory for building and engineering projects. Since this is one of the riskiest sectors government works with, it would make sense for the playbook’s principles to apply to this area too.
Many of the measures in the playbook rely on comprehensive and accurate outsourcing data. Government has improved its internal data on wider public sector contracts since Carillion. This means it is better able to prepare for major failures, and to identify which suppliers offer the best services and which ones are struggling. We welcome its current plans to improve data quality and contract information as part of developing a UK tendering portal to replace the existing EU portal after Brexit. However, there is more to do to improve the quality and transparency of data on procurement and outsourcing.
The playbook could go further in addressing underlying concerns about the transparency of what government is buying, from whom and for how much. Our research showed that most tenders or contract awards notices are not published on the government’s Contacts Finder portal. When Carillion collapsed, it held an estimated 450 public sector contracts. Yet only 28 contract award notices for Carillion were posted on government’s Contracts Finder portal (although this is partly because some contracts would fall below the publication threshold – which we have argued should be changed – and some PFI contracts between private companies and Carillion would not have appeared on the government’s databases).
At the IfG, we’ve argued that government needs to publish better, more consistent data on outsourcing. It has already taken steps in recent years to champion and implement open contracting standards, but it should mandate the use of unique open identifiers so that it can better assess whether contracts are delivered successfully at the right price. Our research also found that departments are still not publishing all of their spending data on time. Further progress on data would improve transparency on what is being purchased and spent; the number of bidders for contracts; and performance data, which the government’s commercial function has already started to capture more consistently across government. It would also enable government to create a single list of public sector contracts.
The playbook is a welcome step in addressing some of the big problems in outsourcing, including inappropriate risk transfer, and insufficient attention to the financial health of suppliers. But there are still gaps to be plugged if government is to use private providers more effectively to deliver public services.