The institute says radical change is needed to address problems with contract failures in the delivery of public services, citing examples such as the overcharging for services by G4S, the failure to deliver NHS contracts by Serco and the underperformance of Capita in court services.

Half of the £187bn spent annually by government with third parties goes on contracted out services, but there is insufficient information published on what this is spent on and the value obtained.

CIPFA is proposing that in order to be awarded any major public sector contract, businesses should agree to follow rigorous OBCM rules to ensure that costs are kept down, that the contract is delivered in the intended way and that taxpayer resources are used effectively.

In its policy briefing on the topic, CIPFA says OBCM works on the principle of pain/gain share, whereby both the client and the contractor ‘own’ the costs. If the costs are well managed, both client and contractor have the opportunity to share any savings, while both share the risk if costs escalate. It says OBCM therefore focuses on value for money, rather than just on lowest cost.

In particular CIPFA argues that as a condition of winning a large contract businesses should agree that their own external auditors will provide a report to the public sector body commissioning the service, confirming that the amounts charged have been costed properly in accordance with the specified Open Book Accounting procedures, and are consistent with the contractor’s own financial management and external reports.

 CIPFA says the power of this approach would be that professionally regulated accountants working for the contractor, and on its board and audit committee, would be bound to ensure that the client had received a transparent and properly prepared account of the amounts due under the contract, and that the necessary contract governance processes were in place.

Rob Whiteman, CIPFA chief executive said: ‘The amount of taxpayers’ money being spent through third parties to deliver public services is increasing. Meanwhile there are a growing number of scandals and disappointing contract failures which demonstrate just how significant the risk is to the public sector when these arrangements go wrong.

‘It is  far too important an area for government to just let slide and it needs leadership and direction from those who decide where public resources are spent.’

In February 2014 the Public Accounts Committee  (PAC) published a report Contracting out public services to the private sector in which it stated that only one in three government contracts currently require the use of open book, and that, even where such provisions exist, they are rarely used.

The briefing note, Open book contract management – Following the public pound, is here: http://www.cipfa.org/cipfa-thinks/briefings