After Carillion Contractors: Public sector outsourcing and contracting

‘After Carillion: Public sector outsourcing and contracting’ is a report really worth reading. It came out a month ago and was produced by the The House of Commons public administration and constitutional affairs select committee.  

The report is structured around five key questions:

·      How appropriate is it for public services or projects to be run by the private sector?

·      The Private Finance Initiative: time for honesty

·      The Government’s approach to contracting: managing risk

·      The effect of Government monopsony on the private sector

·      The Capability of the UK civil service  

The authors have interviewed people from both the private and public sector and they really do shine a spotlight on the flaws in how successive governments have operated in this area and how the fall of giants such as Carillion should have been anticipated.  

Some gems from the report include:

“It is unacceptable that almost 30 years after the first PFI projects were initiated, the Treasury cannot produce an evidence base to support its claims that PFI is worthwhile for any reason apart from the fact that it takes debt off balance sheet.”

“The Treasury and the Government should not approve any further PFI projects until they can clearly justify, based on evidence, their claims about the benefits of the scheme. It will seem bizarre to many observers that the Government has chosen to pay more than it could for £60 billion worth of projects, without evidence of any benefits from the extra cost involved in using this financing method.”

“The Government’s position in some public sector markets is monopsonistic. It has huge power as the only buyer in those markets to set prices, standards of quality and to determine the behaviour of participants.”

“The Government’s preoccupation with price has been noticed by the market and is a matter of grave concern. The Government’s failure to assess the quality of services as well as their cost is lamentable”.

“The Government should improve its due diligence processes to understand the resilience of the cashflow and financial position of its partners”

“The Government also needs to take care that it does not, through having better negotiating capability, merely drive harder bargains with the private sector based on unrealistic estimates of service quality and cost. The Government needs to move beyond such a transactional approach and develop its understanding of the market and its partners in delivering public services.” 

Hopefully, the above has made you want to take a longer read into the full report and I’d love to hear some of your thoughts on what’s been said. To me, it’s really encapsulated some of the fundamentals that are very wrong with outsourcing currently and admits openly that both the public and private sector are at fault. The refreshing thing is that it also gives some ideas on what needs to be done to fix things going forward.