3.4 Recent reports from both the National Audit Office and the Committee of Public Accounts have identified a lack of commercial and project management skills and systemic weaknesses in contract management across government.20 This has led to the Cabinet Office setting up a commercial capability programme and the larger departments undertaking significant efforts to reform the way they manage contracts.
3.5 So far, departments have mainly focused on improving their approach to their larger, more strategically important contracts, which tend to be with larger providers. We estimate that 25% of central government's spending is with a small group of only ten providers. Yet government has records for over 100,000 government contractors. Most departments are yet to decide how to improve their management of government's large group of smaller contractors.
3.6 The 2015 Spending Review has led to further budget cuts for most departments. At the same time, the Cabinet Office and HM Treasury's commercial capability reviews of 11 departments have recommended they increase the seniority, experience and skills of their commercial teams but reduce the number of staff. The aim is for commercial teams to focus on providing more valuable expertise in commercial strategy, market engagement and then operational contract management rather than the procurement process. However, this will also mean reducing the number of administrative staff available to manage contracts. We have yet to see a clear strategy from central government about how it will manage its smaller contracts in this context.
3.7 One option might be greater automation of procurement and management of smaller contracts, using a digital platform to enable policy teams to procure without the support of commercial teams. An alternative is consolidating supply chains through the use of 'prime contractors'. Faced with capacity constraints, government has for many years relied on large prime contractors to manage its more complex supply chains on its behalf. These prime contractors assemble the supply chain, often including SMEs before they bid for the contract. They then manage the supply chain during the contract's operation. Prime contracting also means that subcontractor appointments within the chain normally fall outside public procurement regulations. This makes it potentially quicker and more flexible than direct contracting by a government body.
3.8 Although the new Public Contract Regulations 2015 (paragraph 2.4) requires commissioners to consider breaking contracts into smaller lots, government has extended the use of prime contracting to new areas of spending over the last five years. These included MoD estates, civil service learning, civil service pensions and contingent labour.
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20 Comptroller and Auditor General, Transforming government's contract management, Session 2014-15, HC 269, National Audit Office, September 2014 and HC Committee of Public Accounts, The Centre of government, Nineteenth Report of Session 2014-15, HC107, October 2014