House of Commons - Public Accounts

Select Committee on Public Accounts Fifteenth Report

3 Managing risks with delivery partners

14. Outsourcing through contractors offers new, often innovative, ways to deliver services but complex delivery networks can, in turn, create new risks.[52] In 2004, although 80% of departments assessed the impact on their objectives of one or more parties failing to deliver, relatively few (30%) knew about the strengths and weaknesses of the risk management systems of their partner organisations. A lack of explicit agreement of risk management responsibilities can, at worst, allow important aspects of service delivery to fall "between the cracks" with no one taking responsibility.[53] A lack of ownership for risks may mean that action is not taken to address them, and an overoptimistic view of how much risk can be transferred, for example to the private sector. The risk of working with partners is the weakest aspect of departments' development, where most remains to be achieved.[54]

Managing the risks of failure in contracted out service delivery

15. The performance of contractors may determine whether services of sufficient standard are delivered within expected budgets and timescales. For departments to be alert to potential service delivery failures adequate and reliable information about contractors' performance is needed.[55] One way to encourage contractors to provide comprehensive and accurate data with which to monitor performance is to develop a common purpose and sense of openness with contractors to encourage them to be frank about risks they are running and potential problems before they arise.[56]

16. Where departments rely on private or voluntary sector suppliers they have less direct day to day influence.[57] In such circumstances it is important that contract terms require contractors to work closely with their client department. For example, we found that the Department of Trade and Industry required contractors to participate in operational workshops where risks are evaluated and their management is discussed. Similarly, National Savings and Investment adopted a shared understanding of customers' requirements with its partner organisation Siemens Business Services.[58] A co-operative relationship between departments and their contractors in which there is transparency of information about risks and how they are being managed is in the interests of both parties, so they can deliver well and spot trouble early.[59] The Department of Culture, Media and Sport told us how it achieved this in its Culture Online programme by requiring its contractors to undertake a thorough assessment of risks to delivery before contracts were signed (Figure 7).[60] Figure 7: Managing risks to service delivery with partners

The Department of Trade and Industry's Coal Liabilities Unit works with its contractors to analyse likely risks and to develop a shared understanding of how to manage them, including sharing of risk registers.[61] The Department requires new contractors to participate in risk workshops to: establish risk management principles; identify and prioritise key risks; agree responsibility for them; and to identify and assess controls.[62]
National Savings and Investments entered into partnership with Siemens Business Services to take over its back office functions in April 1999. By adopting a shared understanding of customers' requirements, such as the need to promote continuous improvements to customers service and the need to develop new products to remain competitive, National Savings and Investments and Siemens have developed a shared understanding of risks across the business. A key element of this joint risk management is to ensure good communication between the partners at all levels. In addition to day to day working relationships, at the highest level there are contacts with senior members of Siemens, twice yearly meetings to align NS&I and SBS interests and a range of joint groups and committees covering all aspects of the NS&I business and aim to ensure good communication, and exchange of views and information. In addition, both the NS&I Executive Management Team and the Senior Management Team have SBS representation.[63]
To maximise the likelihood of the arts bodies it contracts with delivering what it has commissioned, Culture Online input time and technical expertise at the contracting stage and insists that contractors undertake a thorough assessment of risks to delivery before the contract is signed. Culture Online vets shortlists of key subcontracts involved in projects and approves the nature of all subcontracts. To obtain the products it has commissioned, during development of the project the Culture Online team has regular meetings with contractors to check on progress.