'Lack of transparency' on contracts

The Government has been strongly criticised over the contracting out of billions of pounds worth of public services to private firms and voluntary groups.

Margaret Hodge says private provision of public services has become "big business"
Margaret Hodge says private provision of public services has become "big business"

The Public Accounts Committee said there was "significant scope for improvement" and a need for a more professional approach to managing contracts.

The Government spends £187 billion on goods and services with third parties every year, around half of which is on contracting out services.

More public services are being contracted out, but the Government was "clearly failing" to manage performance, said the committee.

It made a series of recommendations, including improved transparency of performance and costs, a review of contracts by government departments and a requirement for suppliers to have policies on whistleblowing in place.

Labour MP Margaret Hodge, who chairs the committee, said: "Private provision of public services has become big business, with half of all public spending on goods and services going to private providers of contracted-out services.

"We believe Government needs to urgently get its house in order so that this expenditure is properly open to public scrutiny, and that measures are put in place which will improve services and secure a better deal for the taxpayer.

"Recent scandals illustrate the failure of some contractors to live up to expected standards. These include the astonishing news that G4S and Serco had been overcharging the Ministry of Justice on their electronic tagging contracts for eight years, including claiming for ex-offenders who had actually died, and the complete hash that G4S made of supplying security guards for the Olympics.

"These failures have also exposed serious weaknesses in the Government's ability to negotiate and manage contracts with private companies on our behalf.

"We looked at Serco's misreporting of the performance of its out-of-hours GP services in Cornwall, where the contract was so poorly written that not only did Serco not lose the contract, but they continued to receive bonus payments. When Capita failed to fulfil its contract to provide court translation services it was fined a mere £2,200, despite the substantial extra costs to the criminal justice system of delayed trials.

"There is a lack of transparency and openness around Government's contracts with private providers, with 'commercial confidentiality' frequently invoked as an excuse to withhold information."

Ms Hodge said G4S, Atos, Serco and Capita had all told the committee they were prepared to accept measures to improve transparency.

A Cabinet Office spokesman said: "As the PAC acknowledge, this Government is reforming Whitehall and improving the civil service's commercial capabilities.

"Our reforms saved taxpayers £3.8 billion last year but there's more to do as part of our long-term economic plan and to build on our world-leading transparency record. When we discovered issues with contracts let before the last general election, we took action, securing £179 million of compensation.

"We will respond to the report in due course."

However, TUC general secretary Frances O'Grady said: "It is time to end the default assumption that anything done by the public sector is better done by private contractors. The truth is that there has been a growing tide of scandals, fraud and service failure. Some of this is down to government incompetence in contracting out, but much is an inevitable result of replacing the public sector ethos with the profit motive and cost-cutting.

"This is made worse by allowing private sector contractors to hide behind commercial secrecy every time anyone tries to hold them to account. This is in stark contrast to the welcome transparency provided by freedom of information, transparent governance and parliamentary oversight for the public sector."

Dave Prentis, general secretary of Unison, said: " In the wake of continuing scandals involving private contractors ripping off taxpayers, it is high time that the cloak of commercial confidentiality is lifted.

"We have long campaigned for Freedom of Information requests to apply to contractors. Opening up their books to public scrutiny will help determine if profits are being made at the taxpayers' expense.

"Transparency around contract data will also show that many voluntary sector providers are bidding at less than cost price to hang on to work. This is leading to cuts in staff and to their terms and conditions which means a worse service for vulnerable people."

John Cridland, director general of the CBI said: " The public has a right to know how its money is being spent and the industry has pledged to meet a higher bar on transparency.

"Businesses running public services agree that open book contracting should become the norm. The National Audit Office should also be able to audit government contracts as long as this is done in a systematic way with the triggers for inspection, like missed performance targets, agreed from the outset."

Former Serco managing director Richard Johnson told the BBC Radio 4 Today programme: "I think the report is spot on. These organisations of course are open to all sorts of criticisms but the issue is they are really the product of the way these services are being contracted out and then managed.

"If your strongest motivation is to secure the cheapest possible price for the service, you are ultimately going to be driven to the larger contractors. Cabinet Office, amongst other things, has attempted to mitigate this right now in the forthcoming outsourcing of probation services by giving around £150,000 to support the bids of smaller organisations but you have to compare that with the millions of pounds these large contractors will spend on it.

"Unfortunately, freedom of information can be time consuming, confused and not achieve openness. What we need is transparency built in from the start around the cost of these services, how they then perform and the sort of bids being submitted for them."

Cabinet Office Minister Francis Maude told the same programme said he accepted more needed to be done.

He said: "We've been saying this for the last four years and we have made quite a lot of progress, which the committee gives us some credit for, but there is still a lot we need to do. A lot of this is about changing the culture.

"We have changed a lot of the procedures... I would disagree if you're interested in price, that drives you to the largest providers. I think the reverse can often be the case, often the most competitive provider can be a new, dynamic innovative supplier. "