2 Contractor's duty of care to the
taxpayer
19. Conclusion: Contractors have not
shown an appropriate duty of care to the taxpayer and users of
public services.
20. Private sector
suppliers need to make a profit. But some suppliers have lost
sight of the fact that they are delivering public services. In
this section we cover the need to make sure contractors behave
in accordance with public service standards, including having
performance incentives that are compatible with the public interest
and having more effective controls over unethical behaviour.
Incentives and ethical behaviour
21. Research by the
Committee of Standards in Public Life shows that the public believes
that public services should be delivered to high ethical standards,
regardless of whether they are being delivered by government or
by a contractor working on government's behalf.[33]
Both G4S and Serco accept that they made serious mistakes in their
overbilling of government on their electronic monitoring contracts
and expressed regret to us. G4S told us "… we made
the wrong judgement and we got it wrong, for which we are sorry"
and, from Serco, "What happened was totally unacceptable
and unethical; frankly, we are deeply ashamed of it".[34]
22. But electronic
tagging is not an isolated case of unethical behaviour and disregard
for taxpayers' money. For example, two other G4S contracts have
been referred to the Serious Fraud Office to investigate, and
another Serco contract has been referred to the City of London
police. We have previously reported on Serco's altering of performance
data on its contract for out-of-hours GP services in Cornwall.[35]
23. We questioned
whether the incentive cultures within contractors had driven such
disregard for taxpayers and service users. G4S told us its staff
bonus schemes had been 75% dependent on financial results. Serco
did not believe bonuses were a driver of unethical behaviour in
its organisation.[36]
The Comptroller and Auditor General highlighted how large diversified
contractors such as G4S and Serco face particular challenges controlling
behaviours and performance across their many operations and subsidiaries.[37]
The Ministry of Justice told us it now looks specifically at contractors'
bonus schemes, because it does not want contractor staff incentivised
in a way that encourages them to game the contract and damage
value for money to the government.[38]
24. It is not in the
long-term interests of any private sector provider to behave unethically.
Serco described the fallout from overcharging for electronic tagging
as "a disaster" and the CBI made the point that
"Good behaviour goes hand in hand with operating in this
marketplace … and if you do not do that over a sustained
period of time, that is not good business sense."[39]
Contractors are recognising the need for cultural change and we
were pleased to hear Serco's Group Chief Executive tell us that
"there should be a new dispensation, a new way of thinking
about how companies do business with the Government, which is
that companies owe a duty of care to the taxpayer."[40]
25. The NAO has recommended
that government should get "written representation from contractors
on the integrity of the services they supply, covering the control
environment for maintaining ethical behaviour and public service
standards. Such statements, while not necessarily carrying additional
legal implications, would have symbolic and reputational importance,
and give Parliament clear accountability."[41]
We put this to the CBI who told us that this was perfectly feasible
as every company has a process around governance, controls and
behaviours, while also emphasising that such a requirement would
need to be clearly laid out in contracts.[42]
The Committee on Standards in Public Life made a similar recommendation
in its June 2014 report, when they called for Accounting Officers
to actively seek assurance that public money is being spent in
accordance with the high ethical standards expected of all providers
of public services. The Chair told us that his Committee was particularly
keen on this as a potential means to push for a culture in providers
which recognises and rewards high ethical standards.[43]
26. Recommendation: The Cabinet Office
should work with industry to define what obligations a duty of
care should entail, what sanctions would apply should performance
fall short, and require senior executives to attest annually to
the strength of their internal controls over public contracts
and to be personally accountable to Parliament for performance.
'Corporate renewal'
27. Following the
discovery of overcharging on electronic monitoring, the government
asked G4S and Serco to undertake a process of 'corporate renewal'.[44]
The two firms told us this has involved senior management changes,
strengthening of internal controls, ethical training and changes
to incentive and reward structures. While we accept that there
are new senior managers in place at the firms, the contractors
were less clear how corporate renewal has changed day-to-day operations.[45]
The Cabinet Office described how government was engaged in overseeing
corporate renewal at a very senior level.[46]
While corporate renewal is ongoing, the firms have continued to
deliver government services and win contracts for additional works.[47]
28. Recommendation: The 'corporate renewal'
process is a new concept for many. The Cabinet Office and HM Treasury
should publish a review of this process and its outcome, and,
when disseminating findings, make clear to all departments what
it expects them to do differently and what different behaviours
departments should expect from the contractors.
33 Committee of Standards
in Public Life, Ethical standards for providers of public services,
paragraph 6 Back
34
AQq 22, 52 Back
35
AQ 15, BQq 53-54; C&AG's report, Transforming government's
contract management, Paragraph 7; Committee of Public Accounts,
The provision of the out-of-hours GP service in Cornwall,
HC 472, session 2013-14, July 2013 Back
36
AQq 41, 51 Back
37
AQq 38, 60, BQ 18 Back
38
AQ 200 Back
39
AQq 26-27, BQ 23 Back
40
AQq 67-70 Back
41
C&AG's Report, Transforming government's contract management,
para 3.17 Back
42
BQ 12 Back
43
BQ 11; Committee on Standards in Public Life, Ethical standards
for providers of public services, June 2014, page 9 Back
44
C&AG's report, Transforming government's contract management,
Paragraph 6 Back
45
AQ 22, 24 54 61 Back
46
BQ 47 Back
47
Written submissions from Serco, G4S and Cabinet Office Back
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