MPs have slammed attempts by the Cabinet Office to cut costs by sharing back-office functions, after a report found a move to two shared service centres has resulted in net costs to the taxpayer going up, and says urgent action is required to halt further problems
The public accounts committee (PAC) reviewed the use of shared service centres four years after its original report on their introduction in 2012. Its latest report states: ‘The result is that the two shared service centres considered as part of this inquiry have only delivered £90m of “savings” in the first two and a half years of operation but at a cost of £94m and, therefore, a net cost to the taxpayer of £4m.’
The Cabinet Office now estimates that the centres will deliver savings of around £484m in total by 2023–24, which PAC says compares unfavourably with the anticipated £300m - £400m a year savings set out in the original strategy in 2012.
The Cabinet Office acknowledged that the programme had not gone well but stated that the ambition to create shared services across government remains intact.
The committee claimed that ‘the government’s latest attempts are failing for much the same reasons’ as it previously identified.
These include a failure of governance and leadership by the Cabinet Office; departments acting independently rather than collaboratively; the absence of a realistic business case; a failure in the management of the transfer of risk to suppliers and a failure to develop standardised processes.
‘However, some departments have pulled out of the programme and sought other arrangements to protect their own interests.
‘The lack of commitment to the overall programme by some departments is, in part, because they had assessed that any benefits from participating in the programme would only be marginal. They had not been persuaded by the argument that remaining in the programme would generate benefits for the whole of government. Without the appropriate leadership and governance structures in place, there was nothing preventing them from leaving the programme.’
The committee also heard evidence that the suppliers of the shared services centres had only managed to transfer two of the 26 organisations onto the single operating platforms by April 2016.
The risk of departments failing to migrate to the single operating platforms lay contractually with the suppliers. However, in practice, this risk was not fully passed on to the suppliers, who argued that some of the reasons behind the delays and requests for changes were down to the departments.
The report states: ‘The Cabinet Office was ineffectual in managing this risk because of its inability to force departments to take crucial decisions and an unwillingness to hold the suppliers to account as delays arose.
‘The business models of the suppliers, offering reduced prices, were only sustainable if the migrations occurred.
‘As a consequence of not achieving planned changes negotiations between the government and the suppliers to get the programme back on track will lead to the taxpayer covering additional costs as part of a commercial settlement with suppliers.’
The committee recommends that renegotiations and future programmes should set out clearly whether suppliers or government will bear such risks and urges that ‘where the risk sits with the supplier, the supplier should meet the cost of the failure to manage the risk’.
The committee concludes the failure to set up effective governance at the outset of the programme ‘has had long-term consequences’ and urges the Cabinet Office to set out ‘what steps it will take to make sure it has, by March 2017, effective leadership and sufficient expertise in place’.
PAC wants the Cabinet Office and heads of professions to agree, by March 2017, a set of standardised processes for the programme, and says that by the end of 2016, government should produce ‘a realistic, and complete, business case’ for the centres and set out clear governance procedures.
Meg Hillier, chair of the PAC, said: ‘The government set out to save money with this programme but it launched with critical flaws Whitehall then failed to address. Each department was able to request multiple changes which led to big cost increases.
‘The result has been a net cost to taxpayers and a significant scaling back of ambition for the savings likely to be achieved in the years ahead.’
The public accounts committee report on shared service centres is here.
