Members of the Public Accounts Committee (PAC) also criticised ‘low-balling’ and a ‘race to the bottom in pricing’ in the way public sector contracts are bid for by companies.

A report issued today examines the current market for public sector outsourcing, which consists of 27 strategic suppliers, and the six-weekly risk assessments compiled by Crown Representatives of the Cabinet Office, summarised in the red-amber-green (RAG) risk rating.

The PAC concluded that present RAG rating system ‘is not working, either as a carrot, or as a stick’ and recommended that the Cabinet conduct a review of its strategic supplier risk management policy and place greater emphasis on objective assessment.

The committee was not satisfied with the Cabinet Office’s failure to give Carillion a high-risk rating and rejected the rationale that to do so would inevitably become public.

 It found that the Cabinet Office had overstated the potential impact of publishing previous risk assessments of strategic suppliers, a significant justification offered for failing to make such information public.

However, the PAC has itself declined to release the government’s assessments of its own suppliers for independent scrutiny due to the potential for damage to smaller supply chain businesses and the workers that depend on them. It recommended that all suppliers to government should create and maintain contingency measures in the eventuality of corporate failure, which it termed ‘living wills’, as a means for the government to transfer services to another contractor.

MPs on the committee also called on the government to ‘consider how it responds to a number of its main suppliers experiencing severe financial pressure’.

MP Meg Hillier, chair of the PAC, said: ‘The Public Accounts Committee has long highlighted weaknesses in government contracting and the lessons it must learn if it is to outsource effectively for the benefit of service users and taxpayers.’

‘In particular, we have identified a need for government to be more assertive in shaping the markets in which it operates, with a renewed focus on driving value for taxpayers’ money. It must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs.’

The report revealed that a number of companies involved in public sector work were becoming increasingly concerned over low margins and that some would no longer pursue public sector contracts.

It found that suppliers were often passing cost-cutting down the supplier chain without considering the long-term implications of such behaviour.

Public sector authorities are required during the tendering process to take into account the wider economic, social and environmental implications of outsourcing.

The PAC found that contracting bodies ‘do not always have a sufficiently clear understanding of the service that they are outsourcing’ and that the government has given inadequate guidelines at the start of contracts.

The report does however note the ‘healthy profits’ derived from public sector work and criticises the transactional nature of contracts that precludes quality of services and ignores the consequences of poor service to citizens.

PAC Strategic Suppliers – Fifty-Eighth Report of Session 2017-2019

Report by James Bunney