More and more complex public services are being delivered by private providers through contracts. The traditional model of contracting demanded a clear specification, an orderly competition, a transparent and easy to use service level agreement tied to a payment mechanism that incentivises performance, and an assurance regime by the contract manager to ensure contractual compliance. The reality of complex service provision means this model needs reform. In practice:
• There may be few credible providers of a service.
• Services can be complex. Such services cannot be fully captured in a specification or service level agreement. While a procurement process may result in a "good contract" promising savings and improvements, the contract alone cannot be relied upon to deliver them.
• The government is not always the end user of the service and may not be present at the point of delivery. This can make it difficult to assess quality of provision.
We see too many examples of poor performance and misbehaviour by providers. We also see the opposite of a level playing field where government is often out-negotiated. However, we also see government starting to be more willing to push providers and to use its political influence with them.
Our work looks at how well departments manage contracted-out services, emphasising not only effective project management, contract management and governance, but also the wider ways in which departments can provide effective management and oversight of contracted-out services. Our work also emphasises the role of providers in public service delivery. Through our work we have recommended:
• Providers being accountable and taking responsibility for the delivery of the services they contract for.
• The government using a better understanding of its providers to influence its management of them.
• The use of open-book accounting to help government better understand its providers and the services.
• Clear penalties for misbehaviour and misreporting.
• The use of the credible threat to reputation, recognition of strong performance and the emphasis on the long-term relationship with strategic providers.
"The Review has confirmed that the way many of the government's important contracts are managed is inadequate and the capability of both suppliers and departments needs to improve. The failings could, if left unchecked, lead to future erroneous charging for services delivered or opportunities missed to intervene at the right point in order to make necessary corrections. Allowing this situation to continue is not an option."
Cross-government review of major contracts, HM Government, Autumn 2013