Committee criticises govt for “cost over quality” public sector outsourcing strategy

09 July 2018

The Public Administration and Constitutional Affairs Committee has criticised the government for a “cost over quality” approach to public sector outsourcing.

Releasing its report After Carillion: Public Sector Outsourcing and Contracting today, the Committee said that its inquiry into the matter had revealed evidence that departments had pushed private companies into unrealistic contracts and based its decisions on “incomplete or simply incorrect” information.

“The government must be aware of this: it has written contracts that force contractors to pay out when it gets its own data wrong and has been known to forego performance penalties in the initial phases of contracts,” the Committee stated.

The result of this has been a deterioration in public services, as well as the need to renegotiate over £120 million of contracts since the beginning of 2016 to keep the sector afloat.

“The collapse of Carillion has badly shaken public confidence in outsourcing,” the Committee stated, accusing the government of “forcing contractors to take unacceptable levels of risk” by driving down the price they were willing to pay for services to below the cost of delivering them.

“Worse, the government was unable to provide significant evidence for the basic assertion behind outsourcing: that it provides better services for less public money, or a rationale for why or how it decides to outsource a service,” it added. “This was especially true for PFI. Shockingly, the government admitted to the Committee that the ‘entire [PFI] structure is to keep the debt of the balance sheet.'”

Lastly, the Committee found a lack of transparency in the government’s procurement decisions, reporting that departments do not always follow their own contracting procedures.

Chair of the Committee, Sir Bernard Jenkin, said: “It is staggering that the government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.”

The report calls on the government to collect evidence on the pros and cons of outsourcing and use this information to make realistic decisions regarding public services.