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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