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Saturday, September 6, 2014

Contracting a bad case of contract management

NAO urges further government action on contract oversight From the UK
Government must do more to address "widespread problems" in how it manages contracts with private suppliers, according to new findings from the National Audit Office (NAO).

The MoJ and Home Office were among a number of departments that commissioned internal reviews of their agreements with private contractors last year after the former uncovered what is described as 'systemic malpractice' such as overcharging by G4S and Serco on its electronic monitoring contracts dating back to 2005.

Key issues identified in the report included:

•A failure across government to recognise the importance of contract management and a focus on trying to prevent errors within agreements rather than providing best possible value.
•Government being at a permanent disadvantage concerning its commercial capability compared to the private sector, with contract management traditionally being "vulnerable" to administration cuts and under-investment.
•A lack of pressure from departmental senior managers to demand visibility of contracts.
•Key figures in central government departments not taking contract management seriously as an issue.
The report is available in pdf form here.

Why won’t governments take contract management seriously? Commentary by Stuart Lauchlan
Specific criticism levelled by the NAO includes:
• Allowing the providers to ‘mark their own homework’ by relying on the information supplied by the outsourcing companies rather than carrying out their own checks.
• Lack of ownership with some government departments unable to cite which civil servant had responsbility for making sure that an outsourcing firm was honouring a particular contract.
• Government is too locked in to dealing with companies that are “too important to fail” on the basis that their collapse would cause far reaching disruption to public service delivery.
• Gaps between the numbers and capability of staff allocated to contract management and the level actually required.
• Limited interaction between finance, commercial and operational contract management functions.
• Senior management engagement with suppliers has not been widespread across government.
• A lack of meaningful incentives for innovation that inhibits shared approaches to problem solving and service improvement.
• Government is not fully using commercial incentives to improve public services with levels of payment deductions allowed by contracts are often insufficient to incentivise performance.
• Government does not have sufficient understanding of the level of risk it is retaining on contracted-out services with none of those examined in the cross-government review sharing risk registers with the contractors to ensure all understood who was managing what.

Ultimately, the NAO distills all this down to four major points:
• Failure to recognise the value of contract management meaning that it is seen as a way to avoid things going wrong, rather than unlocking value.
• Senior managers in central government departments don’t take contract management seriously with departments not adapting governance to the expanding role of government contracting.
• Lack of visibility over contracts with senior managers often only engaged on contracting issues to firefight problems and putting little pressure on teams to improve the information they rely on to manage the contract.
• Government has a permanent disadvantage in commercial capability with the Cabinet Office estimating that government as a whole deploys less of its specialist commercial resources on contract management than the private sector.
On this last point the NAO concludes gloomily:
Yet it is doubtful that the government can improve its capability to be able to have the best contract managers on all its contracts. It will not pay either to bring in or retain commercial experts to match the combined expertise of its contractors.

Reaction to the report was predicable.

Margaret Hodge MP, Chair of the Committee of Public Accounts, which is preparing its own report on public procurement, commented:
More and more of our public services are now being delivered by private companies, who between them received a huge £40bn last year from contracts funded by the British taxpayer.  These companies must be held to the same high standards as any government department, so that the public can have confidence that they are delivering the quality of service we are entitled to expect.  With so much taxpayers’ money at stake, departments must urgently put an end to the “out of sight, out of mind” mentality that has led them to be in this weakened position before even more taxpayers’ money is wasted.
Jim Bligh, Head of Public Services policy at the Confederation of British Industry, said:
The NAO is right to highlight that the Government sometimes sees contract management as an afterthought, focusing too much on getting the deal signed and too little on what will happen when the ink dries.

The Government has a sensible programme of commercial reform but progress is too slow. It needs to focus on quickly building up the skills and capabilities of the Civil Service to manage the growing complexity of contracts.  And the Cabinet Office must have the necessary levers at its disposal to make sure that Whitehall departments adopt new ways of working.

The industry recognises that it also needs to act differently.  Wider use of open book accounting would make sure that the Government has better access to financial information about its contracts with the private sector, and improve accountability for the taxpayer.
For its part, the Cabinet Office, which has been spearheading procurement reforms, commented:
The NAO acknowledge our work to overhaul government’s commercial activities which saved taxpayers £5.4billion last year alone, against a 2009/10 baseline. Compared to 2010, when there was no central grip on procurement, we are now taking a hard hitting business-like approach to managing contracts with suppliers.
As the author Stuart Lauchlan noted, this is probably pandemic.

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