1 Progress with improving government's contract management and commercial capability

1. In 2014 the previous Committee of Public Accounts published two reports on government's management of contracted out services.1 We took evidence from the Cabinet Office, Home Office and Ministry of Justice on the basis of their written submissions updating us on progress since then.2

2. In 2013, following issues with overbilling in the Ministry of Justice's electronic monitoring contracts with G4S and Serco, the government commissioned a series of reviews of contract management across departments.3 The reviews found widespread problems in contract management, including poor governance, record keeping and capacity issues.4

3. The previous Committee's report in March 2014 concluded that there was significant scope for government to improve its approach to contracting out public services, and set out five areas for improvement: transparency, contract management and delivery, competition, capability and public service standards.5 The Committee's further report in December 2014 acknowledged that the government was working to improve the way it manages its contractors, but found that "problems with contracting are widespread, long standing and rooted in the culture of the civil service", and concluded government will not achieve value for money from its contracts until it pays much more attention to contract management.6

4. In response the Cabinet Office established a cross-government programme to improve commercial capability. In 2014-15, jointly with the Treasury, it conducted commercial capability reviews of 10 largest spending central government departments, accounting for around £39 billion or almost 90% of central government spending on commercial contracts. The Cabinet Office asked the remaining seven departments, accounting for the remaining £5 billion, to complete self-assessments using the same methodology.7 The Cabinet Office told us that three had been completed as at January 2016, and four were underway and would be complete by April 2016.8

5. The commercial capability reviews found some consistent themes:

■ Commercial capability was overwhelmingly focused on the procurement process at the expense of crucial market shaping and contract management activities;

■ Too few senior experienced commercial people and conversely too many junior, inexperienced commercial people without deep commercial expertise;

■ Vacancy levels in key commercial functions were high, leading to use of interims/consultants in core commercial roles;

■ A need to improve the commercial skills and awareness of policy officials who were not commercial specialists; and

■ Lines of accountability for commercial decision-making needed to be strengthened.9

6. Departments are responsible for acting upon the reviews' recommendations to reform their own commercial arrangements, and all are at different stages of progress.10 There are some examples of good practice, but overall just 37 of the 96 recommendations of the commercial capability reviews have been implemented so far.11

7. The Cabinet Office asked the seven departments with lower spending to self-assess their commercial capability, but four have yet to complete this.12 At least one department currently does not have a Commercial Director and several have not yet confirmed alignment with resources and commercial requirements or implemented a formal change programme to track the implementation of recommendations.13 The Cabinet Office explained that some of these recommendations have now been superseded by its request for departments to produce 'Capability Blueprints' by March 2016.14 The Cabinet Office told us that these blueprints will set out the optimum organisational design for future commercial functions in Departments, and should answer questions such as: "How do you construct your commercial organisation? What's the pipeline of things coming at you?"15

8. The Cabinet Office, Home Office and the Ministry of Justice agreed that there was still work to do. The Home Office told us that there was a requirement for more commercial capability. "As we have disaggregated some of the big procurements, we have had to bring in more system integration and commercial capability. We are managing more contracts and we are managing more relationships between suppliers directly rather than handing all that over to a big prime provider, for example."16 The Ministry of Justice considered that its commercial capability had improved but there was further to go, referencing the maturity matrix in Tim Breedon's December 2013 report: "At the time Tim Breedon did his review, we were scoring two, which is described as informal on almost everything. I think now we are on three, three and a half and four on each of the scores, so we are unquestionably making progress, but if you are still on a score of three out of five it is pretty uncomfortable".17 The Cabinet Office admitted disappointment that things are not moving faster, and was not able to say with certainty that reform would be complete by the end of this Parliament.18 However, it was confident that things are improving and told us "Some are going faster than others and some are more frustrating than others, but I honestly think that we are building momentum in the right dimensions."19

9. We challenged the Cabinet Office as to why it, as the centre of government, had not effectively held departments to account for slow progress, particularly the four Departments yet to complete a self-assessment of their commercial capability.20 Given that the NAO and the previous Committee reported in late 2014, we also asked why it has taken until February 2016 for the Cabinet Office to publish the government's high-level 'commercial standards' which are intended to be the gold standard across all departments.21 The Cabinet Office told us that it had limited resources and had shifted these to focus on the challenge of recruiting commercial staff, admitting that "we took our attention off the reviews and on to the recruitment; and that allowed the system not to be held to account every month … .I don't think we followed up as hard as we might have, of the seven that were doing their own reviews."22

10. The Cabinet Office also attributed the delay in publishing the standards to the lack of a coherent centre of government, and pointed to underlying cultural issues preventing the Cabinet Office from exerting its authority with departments.23 The Cabinet Office told us that departments are ultimately accountable for improving their commercial capability and "if you have a cultural change to make, just because the Cabinet Office happens to ask a bunch of questions doesn't mean that everybody jumps to attention."24 The Cabinet Office admitted that in order to "inquire of departments in an intelligent and helpful yet challenging way", it needed to improve its own capability: "The centre of Government can easily become shrill, and unless the centre of Government has the right capabilities inside it and can interact in a mature and sensible way with Departments, it is just not effective."25

11. Accountability lies in departments but the Cabinet Office does have some formal ways to influence behaviour. The Cabinet Office told us that the Chief Executive of the Civil Service can influence the appraisal of Departmental permanent secretaries, and the Government Chief Commercial Officer can influence the appraisals of Commercial heads in departments.26 The Home Office permanent secretary told us that in appraising his Commercial heads "I would ask my Chief Commercial Officer and it would definitely involve the head of the Government Service and probably my Chief Operating Officer for whom he works."27 The Ministry of Justice agreed but also told us that it does not rely on the centre for momentum, as it has to take this seriously "because we deliver £3 billion of business through contracts, because we were scarred by the monitoring fiasco a couple of years ago and everyone knows it is absolutely near the top of the stuff we have to get right. That ought to be the case in every Department."28

12. The Cabinet Office highlighted three departments that have made significant progress-the Ministry of Defence, the Department for Work and Pensions, and the Department of Energy and Climate Change-and four for which it still has concerns-the Department of Health, HM Revenue & Customs, the Home Office and the Ministry of Justice.29 Going forward, the real test will be if departments manage to submit their commercial 'Capability Blueprints' by March 2016. The Cabinet Office's current assessment is that "they won't all do it, but most of them, I believe, will."30

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1 Committee of Public Accounts report, Contracting out public services to the private sector, Forty-seventh Report of Session 2013-14, HC 777 14 March 2014; Committee of Public Accounts report, Transforming contract management, Twenty-third Report of Session 2014-15, HC 585, 10 December 2014

2 Cabinet Office (TCM0003); Ministry of Justice (TCM0001); Home Office (TCM0002)

3 HM Government, Cross Government Review of Major Contracts, Autumn 2013; Ministry of Justice, Contract Management Review Findings and Recommendations Report, December 2013

4 C&AG's Report, Cabinet Office, Transforming government's contract management, Session 2014-15, HC 269, 4 September 2014, paras 3, 9

5 Committee of Public Accounts report, Contracting out public services to the private sector, Forty-seventh Report of Session 2013-14, HC 777 14 March 2014

6 Committee of Public Accounts report, Transforming contract management, Twenty-third Report of Session 2014-15, HC 585, 10 December 2014, summary

7 Qq 15, 20-21

8 Cabinet Office (TCM0006)

9 Cabinet Office (TCM0003) para 8.1

10 Q 5; Cabinet Office (TCM0003) para 8.2

11 Qq 11, 27