The minister for the Cabinet Office has revealed that government is considering ways to avoid being dependent on a handful of suppliers for key public service contracts, as part of an inquiry into the handling of outsourcer Carillion’s collapse.
David Lidington said the internal review on Carillion, which had 450 public sector contracts and went into liquidation in January, involved looking at “reputable providers outside of the United Kingdom” who could be invited to bid for contracts.
Speaking to MPs on the Public Administration and Constitutional Affairs Committee today, the de facto deputy prime minister also said the fiasco had prompted a review of the Social Value Act.
At the same PACAC hearing on sourcing public services, John Manzoni, civil service chief executive, told MPs that key government suppliers had all made management and strategic changes in light of problems of unprofitability in the sector.
Responding to concerns about the domination of just a few suppliers in the market for some government services, Lidington said this was particularly the case for “complex public services where the government is the only ultimate buyer”. In that market the top five suppliers have just under 60% of the market. “That does cause some concern, I would like that market to be bigger,” he said.
The minister said he was looking at how to introduce more competitors into the market as part of the Cabinet Office internal review of lessons to be learned from Carillion. He said he hoped to be able to outline potential changes to be brought in following that review at some point in the next couple of months.
One area where there has been some success in tackling these monopolies is in disaggregating huge IT contracts, the committee was told.
However, Lidington cautioned that the government’s target for a third of its procurement spend to go directly or indirectly to small and medium-sized businesses (SMEs) by 2022 was “very demanding”. He said greater spend with SMEs was more likely to come from “pressure on the sub-contracting side than to look at disaggregation of the very big contracts”, which would require government to have a much bigger contract management function – while some contracts require a bidder with a “substantial balance sheet to be able to absorb risks”.
But he reiterated that work was underway to assess possibilities for enlarging the supplier market, to ensure government does not become dependent on a single supplier. “It may not be looking at just UK-based providers,” he said. “It may well involve looking at reputable providers outside of the United Kingdom.”
Lidington later revealed that government was also looking at the Social Value Act 2012 as part of its Carillion inquiry.
MPs were told that the civil service was aware it needed to get better at assessing the quality as well as the cost of bids. Lidington said part of that approach was embedded in the Act, which called for commissioning teams to factor social, economic and environmental wellbeing into public service contracts.
The Act has not had “a transformative effect”, Lidington conceded, adding: “One of the things we are doing post-Carillion is having another look at how social factors can better be taken into account when awarding contracts.”
He said the Department for Culture, Media and Sport is currently consulting on a new civil society strategy which may lead to a formal review of the Act.
John Manzoni, civil service chief executive, also told the committee that government had “a lot of the scaffolding in place” to make better decisions on outsourcing.
This includes, he said, the various stages of a programme’s business case, Green Book guidance, Infrastructure and Project Authority reviews, and Cabinet Office controls – although a revamp of commercial spend controls was announced last week.
There was still more to be done, he said, such as becoming more flexible and building the “skills to make the judgements within that scaffolding”, a current major focus for government.
Elsewhere, he said responsibility for some of the current problems within outsourcing should be shared by government and suppliers. Carillion had first issued profit warnings in July last year, while fellow contractors Capita and Interserve have also issued warnings.
“We have an allowed an era where companies have spread themselves very thin, bid low just to win contracts and in part because we have not had the sophistication internally to do much other than go for price,” said Manzoni.
“All of the household names are part of that. They have all, in the last year or two, changed their managements, changed their strategies… because between us we have allowed that condition to pertain.”