Transforming contract management - Public Accounts Committee Contents

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

previous page contents next page

© Parliamentary copyright 2014
Prepared 10 December 2014