Figure 7

Contracting out public services has increased since the 1980s

Examples of major themes in contracting 1982 to 2014

Notes

1  Organisations referred to in the figure include: MOD - Ministry of Defence; OGC - Office of Government Commerce; DfT - Department for Transport; DWP - Department for Work & Pensions; HMRC - HM Revenue & Customs; DVLA - Driver and Vehicle Licensing Agency; NS&I - National Savings & Investments.

2  The ASPIRE and STEPS contracts were originally let by the Inland Revenue, which is now HMRC, and the PRIME contract was originally let by the Department for Social Security, which is now the Department for Work & Pensions.

Source: National Audit Office analysis of value for money reports, 1982 to 2014

Figure 8

The findings of the 2013 government reviews echo earlier work

NAO good practice areas

NAO findings (December 2008)

Committee of Public Accounts recommendations (April 2009)

Planning and governance

Poorly prioritised contract management

There was often no single individual with overall responsibility for contract management across an organisation, and no documented plan for managing individual contracts in more than a quarter of cases. Where plans did exist, supplier input was limited

Assign responsibility to a single individual. (Including contract governance and creation of documented contract management plans)

People

Insufficient skills and resources

27% of commercial directors or heads of procurement rated the level of resources allocated to contract management as poor. Few contract managers hold any formal commercial qualification

Review and put in place appropriate contract management resource

Administration

Lack of central guidance and support

The OGC had focused its work developing guidance and training primarily on the ICT sector, rather than on contract management more broadly

Payment and incentives

Insufficient use of penalties

Organisations did not always use the performance information they collected from suppliers. 38% of contract managers did not always invoke payment deductions when supplier performance was below the specified standard

Performance deductions should be enforced (except under very exceptional circumstances supported by guidance)

Managing performance

Performance measures should be in place, and adapted to requirements

Risk

Weak risk management

37% of contracts did not have a risk register and 56% did not have contingency plans for supplier failure

Risk management processes and contingency plans should follow good practice, and be supported by guidance

Contract development

Lack of focus on improvement

Departments were not always using benchmarking to improve value. Only 53% of contract managers had a formal plan for supplier improvement and development

Value for money testing at least every 3 years and for all significant changes

Managing relationships

Lack of supplier relationship management

Ways in which day-to-day working relationships might be improved include defining more clearly the expected behaviours of both parties throughout the duration of the contract

Central guidance, including monitoring major suppliers

Source: National Audit Office analysis of detailed review findings and audit papers

Government review findings (2013-14)

Examples from the recent contract management reviews

Consequence

Problems on 38 out of 73 contracts including:

•  a general lack of visibility of contracting at board or executive level;

•  lack of senior involvement; and

•  missing or insufficient contract management plans.

The Home Office immigration caseworking contract had no contract management plan

Departments lack good strategic understanding of how contracting can deliver

Problems on 40 out of 73 contracts including:

•  insufficient numbers and capability of staff allocated to contract management; and

•  limited knowledge of the detail of the contract among contract operations staff.

Inadequate capability contributed to the Ministry of Justice's contract management problems. The team responsible for the Electronic Monitoring contracts shrunk from 8 to 5 between 2007 and 2012. Following a bottom- up assessment of contract management requirements, staffing has now risen to 7

Departments have reduced knowledge of how their contracts work, and how services are delivered

Problems on 39 of 73 contracts including:

•  weak interactions between the finance, commercial and contract management functions.

Serco and G4S had not deducted agreed amounts from invoices for the Home Office's immigration removal centres. The amount was small but larger errors may also not be detected

Departments are unable to detect or prevent overbilling

Problems on 48 of 73 contracts including:

•  levels of deductions allowed by the contract insufficient to incentivise contractor performance; and

•  lack of use of 'open book' clauses.

Ofsted had only one payment retention mechanism available in its inspection contract with Serco. The grounds for this financial remedy were subjective, not well linked to delivery and the potential financial penalty was small 

Contracts are not used to incentivise good performance

Problems on 50 of 73 contracts including:

•  over-reliance on performance data provided by suppliers; and

•  key performance indicators misaligned with the intended contract objectives.

Performance on the Ministry of Defence's facilities and engineering support contract at RAF Cranwell was only assessed by subjective measures such as complaints

Departments are losing the ability to influence the quality of public services

Problems on 47 of 73 contracts including:

•  lack of evidence of comprehensive risk assessment on contracted services.

The Foreign and Commonwealth Office Afghanistan security contract with G4S had no risk register and had not been signed

Departments do not understand the level of risk that they have retained

Problems on 50 of 73 contracts including:

•  changes being made to contracts at an operational level in isolation from other service areas, risking unintended consequences to other contracts or to the overall strategic intent of the contract.

Changes to the Ministry of Defence's facilities management contract for the Defence Academy campus (Serco) had been agreed and put in practice, but not formally recorded as contract changes

Departments are not able to change contracts to reflect changing circumstances

Problems on 31 of 73 contracts including:

•  lack of meaningful incentives to strongly encourage either the department or the supplier to innovate; and

•  reluctance of departments to move away from the original contractual terms.

The service specification for the Ministry of Defence's contract with Serco for marine support services at naval bases specified services was based on old data which did not reflect changes in vessel specifications or current levels of activity

Departments are not well placed to innovate in contracted-out services