Transforming contract management - Public Accounts Committee Contents

1  Achieving value for money from contracts

1.  Conclusion: The government will not achieve value for money from its contracts until it pays much more attention to contract management.

2.  In 2013, government discovered that G4S and Serco had been overcharging the Ministry of Justice on its electronic monitoring contracts for years. The contracts have since been referred to the Serious Fraud Office along with two other G4S contracts with the Ministry of Justice. A further Ministry of Justice contract with Serco has been referred to the police and all investigations are ongoing. The two companies have since repaid some £180 million. Government described the electronic monitoring experience of 2013 to us as a "wake-up call" for its contract management.[3]

3.  The Government reviews, launched after the discovery of overcharging on electronic monitoring, found widespread evidence of poor contract management across departments. They found weaknesses in many areas, including governance, capability, incentives, performance management and understanding of risk.[4] These are all areas where, despite this Committee's recommendations for improvement in 2009, we have seen problems time and again in the evidence brought before us since then.[5] Despite government's acceptance of our recommendations in 2009, and the availability of the NAO's 2008 good practice framework for contract management, the NAO found that government's focus on improving contract management had since "drifted away". The NAO also set out the consequences of weaknesses in contract management, which include more scope for fraud and error, more contractual disputes, and a failure to penalise poor performance or achieve cost savings.[6]

4.  The NAO reported some positive signs of change with, for example, major spending departments having recently launched significant programmes to improve contract management and the Cabinet Office stepping up its support for departments. But, as the NAO stressed, there is a lot still to be worked out and "there needs to be widespread change in the culture of the civil service and the way in which contractors are managed."[7]

5.  It is encouraging that government has now started to take the issue seriously. The Cabinet Office assured us that contract management has moved up the agenda at the top of the civil service. It told us how a senior group chaired by the Cabinet Secretary is overseeing improvement and how the new chief executive of the civil service will also have a role in delivering change.[8] We also heard how departments such as the Home Office and Ministry of Justice are making significant changes to the way they are managing contracts.[9]

6.  Recommendation: The Cabinet Office must lead efforts to make sure that the current emphasis on improving contract management is embedded across all departments and that tendering processes did not discriminate against small and medium sized enterprises. It must not lose focus and should report back to this Committee by the end of 2015 on the progress made in implementing reforms across government.

Senior management focus on contract management

7.  The Ministry of Justice told us that, during the time of overcharging on electronic monitoring contracts, it had considered that the highest risks were with the negotiation of new contracts, as opposed to the management of 'live' contracts. The attention of senior managers in the department was therefore on new contracts and the Ministry acknowledged that "the energy and effort of people was at a lower level on those live contracts, and that is certainly the lesson that electronic monitoring taught us."[10] The NAO report also highlighted how senior governance mechanisms were focused on approving new projects rather than monitoring existing ones, and that senior managers had not taken contract management seriously.[11] The Cabinet Office told us that the involvement of senior managers in contract management across government has been patchy. The Cabinet Office also spoke of a culture in the civil service where "the glamour was in the procurement, and contract management was just handed off to 'the business'. They all wanted to do the next procurement".[12]

8.  One of the Cabinet Office's external crown representatives contrasted this level of engagement with direct accountability in the private sector. He told us that senior managers responsible for strategically important contracts should be "waking up at 2 a.m. worrying about them" and that stronger accountability and sanction at senior management level was required.[13] Both the Home Office and the Ministry of Justice agreed that clear accountability over contracts is important.[14]

9.  Recommendation: Accounting Officers remain accountable for spending throughout the life of contracts. They should put in place an accountability framework for contracts which specifies how senior oversight of major contracts should work in practice—including the information needed to scrutinise and challenge contractor performance, cost and progress in making further savings—and the personal responsibilities of senior managers, with appropriate sanctions and rewards for performance.

Improving commercial skills in government

10.  The Cabinet Office described a history of deskilling in the civil service, which it believed was a major factor in government's weak contract management.[15] The Ministry of Justice acknowledged it had reduced staff numbers involved in contract management.[16] The Cabinet Office told us how it thought government had too few experienced staff working on contract management and too many at junior levels. They believe this capability is too often focused on the procurement phase than on the management of operational contracts.[17] The NAO report also highlighted the low status of the commercial profession in government and its vulnerability to under-investment.[18]

11.  We asked the Confederation of British Industry about the apparent asymmetry between the client (government) and contractor, whereby the client does not have comparable knowledge and expertise to deal effectively with contractors on large complex projects. The CBI argued that it is difficult for a government client to have every skill in-house, but that support should be available from other departments or third party advisors. The CBI went on to say "You have to ask yourselves, if you are going to commission large, complex contracts as part of Government, you need to have the people who can do that and who are paid the right amount of money to do that for you."[19]

12.  There are signs that government is beginning to take skills development seriously. We heard about the growing involvement of external crown representatives, who the Cabinet Office told us are bringing private sector commercial experience from which civil service staff can benefit. However at present the Government is too often relying on internal staff from the Civil Service to fulfil the role of external crown representatives. The Cabinet Office also highlighted government's 'commissioning academies', which are providing six days of training for cohorts of civil service staff, and a new commercial fast stream programme to provide graduate careers focussed on commercial activity. But numbers are limited in the context of the step change required.[20] We welcome the focus on improving skills in the civil service but fear that the current efforts are not on a scale to address the seriousness of the capability gap. The Comptroller and Auditor General, while recognising the steps being taken to develop skills in government, cautioned against any over-optimistic suggestions that government would ever be able to match and maintain the level of skills and expertise available to the private sector; making the point that this made it all the more important to tilt the balance of contractual relationships back towards the government and taxpayers' interests. [21]

13.  The Ministry of Justice and the Home Office both told us about the difficulties they had had recruiting and retaining commercial experts.[22] The NAO reported it was doubtful that the capability gap compared to the private sector could ever be closed completely, given the differences in pay and incentives between public and private sector commercial staff.[23] The Cabinet Office agreed that remuneration incentives are not currently sufficient to attract and motivate the best experienced commercial staff.[24] The Ministry of Justice drew a contrast with quite different organisational structures in the private sector, with higher rates of pay for extremely scarce expertise and lower rates of pay for people doing more basic jobs.[25]

14.  The Cabinet Office described to us how it believes the civil service needs to change in order to tackle the cultural issues and barriers that have led to the capability gap compared to the private sector. The Cabinet Office told us that it did not think government needed to pay staff a lot more, but also said that the civil service should not be frightened of performance payments as part of remuneration packages. It also said that the civil service does not do enough to reward good people in terms of career progression to more senior and influential commercial roles, or to remove people who are not performing.[26] Neither Accounting Officer from the Home Office or the Ministry of Justice was able to convince us that they had significant direct contract management experience themselves, but they reported encouraging signs that permanent secretaries in future would increasingly have operational and commercial experience. [27]

15.  Recommendation: We welcome progress to improve the government's commercial and contract management skills, but this needs to be supported by concerted Cabinet Office action in two areas: to increase the attractiveness of careers in commercial disciplines including pay, status and career development; and do more to raise the commercial awareness of operational managers so they can work with the commercial professionals to achieve value for money throughout the life of contracts.

The response in the Ministry of Justice and the Home Office

16.  In response to the overbilling crisis on electronic monitoring, the Cabinet Office undertook a review of contract management and required all departments to prepare contract management improvement plans.[28] In its comparison of the responses by two departments, the NAO reported that the Ministry of Justice had started from a weaker position than the Home Office, but had responded promptly, with a more comprehensive improvement plan.[29] The Ministry of Justice told us its plan is focusing on strengthening senior leadership, and providing commercial training for its senior civil service staff. The Ministry has also put specific arrangements in place for more senior oversight and challenge of operational contracts and both the executive team and departmental board are more focused on the issue. The Ministry assured us that it would scale back its outsourcing activity if it did not have the commercial capability to manage it effectively.[30]

17.  The Home Office described how its plan is focusing on training for commercial staff. It has also established a Portfolio and Investment Committee to extend senior scrutiny beyond just new procurements to cover operational contracts. The Home Office told us that it has drawn from the NAO's comparative analysis to adopt some of the Ministry's practices, such as a scorecard for each major contract.[31] It acknowledged that part of its problems lie outside its commercial directorate, in operational performance management of suppliers. It said that both commercial and performance management needed to improve, though so far it has focused on the former.[32]

18.  Recommendation: Alongside the Cabinet Office reporting back to us at the end of 2015, both the Ministry of Justice and the Home Office should report back to us specifically on progress with their contract management improvement plans:

·  For the Ministry we will be particularly interested in arrangements for running the 'Transforming Rehabilitation' contracts (for outsourcing probation services) which we see as a litmus test for better management of high risk and complex contracts.

·  For the Home Office we will be particularly interested in what it has done to extend improvement plans beyond its commercial directorate and into the operational management of contracts.

3   AQ 116 (HC 585), BQ 91 (HC 586); C&AG's report, Transforming government's contract management, Paragraph 7 Back

4   C&AG's report, Transforming government's contract management, Paragraph 9 Back

5   Committee of Public Accounts, Central government's management of service contracts, HC 152, Session 2008-09, 23 March 2009; C&AG's report, Transforming government's contract management, Paragraph 2.7, Figure 8 Back

6   C&AG's report, Transforming government's contract management, Paragraphs 10, 11 Back

7   C&AG's report, Transforming government's contract management, Paragraph 20 Back

8   BQ 77-78, BQq 93-94 Back

9   AQ 143-144, C&AG's report, Home Office and Ministry of Justice, Transforming contract management, Paragraph 11 Back

10   AQ 125 Back

11   C&AG report, Transforming government's contract management, Paragraph 12 Back

12   BQ 79, 95 Back

13   BQ 141-143 Back

14   AQ 222 Back

15   BQ 54, BQ 95 Back

16   AQ 143 Back

17   BQ 71, 95 Back

18   C&AG's report, Transforming government's contract management, Paragraph 12 Back

19   BQ 24-27 Back

20   BQ 58, 59, 66-71 Back

21   BQ 122 Back

22   AQ 163 Back

23   C&AG's report, Transforming government's contract management, Paragraphs 12, 2.21 Back

24   BQ 57 Back

25   AQ 168 Back

26   BQ 57 Back

27   AQq 111-115, 216 Back

28   BQ 101 Back

29   C&AG's report, Home Office and Ministry of Justice, Transforming contract management, Paragraph 40 Back

30   AQq 143-144, 162, 214-5 Back

31   AQq 144, 156, 218 Back

32   AQ 158; C&AG's report, Home Office and Ministry of Justice, Transforming contract management, Paragraph 11 Back

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Prepared 10 December 2014