18 Government needs to ensure responsibility for the delivery of contracted-out services and the control environment rests with contractors. Government needs to create a situation where it can rely on its contractors even when it is not deploying its best contract managers to oversee them. Senior executives within contractors should accept, through the contract, the personal accountability for delivery that senior responsible owners accept within the civil service. Such a system would have 3 features:
• Intelligence on strategic suppliers
The example of G4S and Serco shows how government needs to be far more inquisitive about the strategy, internal operations and culture of its strategic providers. Where government is reliant on strategic contractors, it is reasonable that it has very clear expectations about how that organisation behaves and manages itself. Information is readily available through sources such as public announcements, investor information and the work of market analysts. Skilled analysis, collation and sharing of this information will improve the intelligence currently provided to the crown representatives who lead cross-government negotiations with strategic suppliers.
• Transparency
The Cabinet Office and the Confederation of British Industry (CBI) are working together to produce a joint set of principles for improved transparency over contracting. Internal audit divisions are increasing their work devoted to contract management and starting to think about how to assure the controls for strategic providers. The Department for Work & Pensions, for example, is requiring new contractors to commission external reviews to give assurance on the contractor's controls. These initiatives need to be brought together into an integrated system of control, transparency and assurance. Departments should set out the objectives of the control environment, and use transparency and assurance mechanisms to ensure compliance.
• Incentives
Government needs to be better at enforcing its contracts and deducting penalties. We see post-contract audit reviews, gain-share arrangements and profit claw-back playing a greater role in ensuring incentives are aligned and value is not lost in adversarial behaviour. Government and industry now accept that open-book accounting needs to be widely used to build trust and ensure incentives are aligned. However, there are a lot of details to be worked out. The Cabinet Office is undertaking pilots to establish how its regular use will be implemented. This needs to draw on knowledge from departments such as the Ministry of Defence which have experience in this area. We would expect government to develop data analytics to compare costs and margins between contracts.