1. There are encouraging signs of change but the current pace of progress with reform is disappointing. The Cabinet Office and the Treasury jointly led commercial capability reviews of the 10 largest spending departments in central government in 2014-15. The reviews set out recommendations to each of the departments, including on staffing models, accountability and commercial skills, with departments reporting progress monthly to the Cabinet Office. To date, just 37 of the total 96 recommendations have been completed, and the Cabinet Office rated government's progress as a whole to be "two to three out of five". We continue to see regular problems with the government's ability to manage contracts effectively; recent examples include military flying training, health and disability assessments, and the GP extraction service. Departments must increase the pace of progress significantly, or issues with commercial capability will continue to undermine value for money. The Cabinet Office told us that momentum is building but it could not give a timeline for when reform would be complete, other than it would hope it would be by the end of this parliament. It has requested all departments produce a 'capability blueprint' by March 2016, which includes a timeline for completing their remaining recommendations as well as setting out what their future commercial organisation will look like and how and when they will get there.
Recommendation: All departments must understand the importance of getting contract management right, redouble their efforts and step up the pace to improve their contract management and commercial capability. By the end of 2016, the Cabinet Office should report back to us with an overview of progress made by each department, identifying any departments which fail to produce credible plans.
2. The centre of government is not effectively challenging departments on slow progress. The Cabinet Office is responsible for leading the commercial capability reform programme across government. This includes coordinating initiatives across departments, providing support such as with recruitment and by issuing guidance, tracking and challenging departments' progress, and holding them to account. However, the Cabinet Office has struggled to exert its authority and allowed some departments to fall behind. For instance, early in 2015 it asked the seven lower spending departments, covering about £5 billion of commercial contracts, to self-assess their commercial capability but four have not completed them yet. The Cabinet Office acknowledged that it had limited resources, and took its attention off following up the reviews to focus on the challenge of recruiting commercial staff instead. It is apparent that some departments have simply not taken the need to improve their commercial capability seriously enough.
Recommendation: The Cabinet Office needs to step up in its role of holding departments to account for their progress, as well as supporting them where it can. By the end of 2016, the Cabinet Office should set out and implement a process for how it will intervene if departments do not cooperate, including reflecting this in performance appraisals of Departmental permanent secretaries and Commercial Directors.
3. There are indications that the culture is starting to change, with senior management in the civil service taking contract management and commercial capability more seriously, but there is more to do. One of the main conclusions of the government's commercial capability reviews was that there was insufficient focus on managing the contracts once the deal had been signed. The previous Committee reported that government was starting to take the issue seriously, and we accept that the culture is starting to improve. Culture change includes raising the commercial competence of staff outside of departments' commercial functions, such as of senior contract owners in operational roles, and staff in policy roles. The Ministry of Justice told us that changes to its organisational culture are underway, that it would be a recipe for disaster if knowledge of how contracts worked were confined to commercial specialists, and that senior contract owners would be answerable to the Minister for the success of these contracts. The Home Office similarly told us that the person directly accountable to the Accounting Officer for the delivery of an effective contract is the senior contract owner. However, there is a risk that contract owners might not be effectively held to account by their line management within a wider civil service culture which does not sufficiently value commercial expertise.
Recommendation: Departments should ensure that operational contract owners are held to account by their Director General and Accounting Officer. By the end of 2016, they should also put in place a system of independent challenge outside of the line management structures whereby contract owners confirm they understand their responsibilities, and are challenged on aspects of contract and contractor performance.
4. Commercial roles in the civil service are not attractive enough to potential candidates. Progress in recruiting commercial staff has been slow. The Cabinet Office's submission says some departments report vacancy and interim rates of 15% or more, and it admitted that recruitment has been more challenging than expected. Government has now hired several staff, including through a fast track commercial programme and apprenticeship scheme, but key senior-level posts such as at least one departmental commercial director are still unfilled, and retention continues to be an issue. Part of the wider problem is pay, and the Cabinet Office is developing a new pay and grading structure to address this, but it is unlikely to be able to rival salaries in the private sector. The government must therefore challenge existing practices and tackle other elements of job satisfaction and the rewards available.
Recommendation: The Cabinet Office should improve the status of commercial roles, including consulting with departments on whether departmental Commercial Directors should sit on Departmental Boards; and increasing the weighting of commercial competence when considering senior civil service promotions.
5. Departments are not always holding contractors to account for meeting the needs of users, especially vulnerable groups, and there is a risk that the user's voice is not heard. Recent events have shown that government continues to rely on whistleblowers and journalists to bring contracting issues to light. For example, undercover footage by the BBC Panorama documentary showed G4S staff at the Medway Secure Training Centre mistreating children. Similarly, the Home Office did not follow through on the risk of people being identified as asylum seekers because the contractor had painted their doors red, despite the issue being raised by this Committee two years ago and G4S's reassurance that it would look into the issue. We are concerned that users have no way to report alleged instances directly to the department other than through the contractor; and it is far from easy in practice for vulnerable groups such as asylum seekers and children to raise complaints. It is disappointing that the government did not accept the previous Committee's recommendation to improve whistleblowing procedures by including a standard term in contracts requiring suppliers to have whistleblowing policies in place, and including a requirement for contractors to nominate designated officials within departments to receive disclosures from whistleblowers. The government must strengthen the way in which it holds contractors to account and take additional measures to ensure vulnerable users are protected.
Recommendation: Departments need to be clear with their contractors that they will be held to account, by Parliament as well as the department, for meeting user needs and being responsive if issues come to light during the running of the contract. Departments should ensure this is also codified in their contracts with these service providers.
Each department should ensure that users are clear on what they can expect from contractors and should publicise a direct route through which users, especially vulnerable groups, can escalate issues.
6. Departments' assurance arrangements over contract and contractor performance are still lacking. The previous Committee repeatedly made recommendations on what needs to be in place to manage contracts effectively, including greater transparency of performance and costs, and use of open book accounting and internal audit. Without this, departmental Accounting Officers cannot be assured that contractors are performing and users' needs are being met. We were also concerned to see the Panorama footage of the Medway Secure Training Centre showing G4S staff were pressurised to lie about incidents in order to avoid fines to the company. Departments report progress regarding the use of open book accounting and internal audit, but there is still not a consistent approach across government. The Ministry of Justice reports a greater rolling programme of contract audits than the Home Office which relies more on its quality assurance function within the operation and management of the contract. The Ministry of Justice told us open book would be in place for "nearly all" its contracts, and the Home Office told us it would largely be used on "big and complex" contracts. But neither provided facts or figures demonstrating the extent of compliance with these general principles. The Cabinet Office told us that it expected to publish guidance on the use of open book in late February 2016.
Recommendation: By the end of 2016, all departments should review their contract assurance frameworks and introduce a rolling programme of assurance, including greater transparency and effective use of open book and internal audit, to ensure contractors deliver what they are supposed to and that there is no scope for misreporting.