One of the most important insights from this study is the need for government and industry to recognise that the procurement and contract management tools that are appropriate for buying 'paperclips' - highly commoditised, easily specified goods and services - are not appropriate for commissioning complex support services and front-line human services.
The shift from a relational form of contracting, based heavily on personal relationships and institutional trust, to a highly transactional approach, which relies on the enforcement of performance indicators through financial penalties, is based in part on the failure to understand this distinction.
It appears that there is scope for a one-off financial gain when the dominant party in a market suddenly shifts from a relational form of contracting to an aggressively contractual one. Arguably, this is what happened in the UK market over the past five or six years. Government has exploited its supply chain, extracting large cash payments based on the promise of additional business, adopting an adversarial approach to the interpretation of contract clauses and in the process extracting significant financial abatements or penalties in circumstances where, traditionally, a more collaborative approach would have been adopted.
Contract form must follow service function - and if government is not willing to adapt its contracting models so that they are appropriate to the services being put to market, then the range of functions included in the contract will inevitably shrink. Highly transactional contracting forms are appropriate for simple functions but not for complex services.
A move in some parts of government and industry to commoditise the market is another example. There has been a view in government that 'significant and substantial savings can be achieved through centralisation, aggregation and standardisation', while providers have sought to reduce their prices and (for a time) increase their margins, through 'step and repeat'.
The danger is that if government treats complex public services as commodities when they are not capable of being standardised, this will encourage a focus on price and a race to the bottom. There are examples of e-auctions being used for complex public services, with providers being caught up in bid fever as a result.
Government has two roles when it comes to the design and operation of public service markets: it is both a player in the market and the regulator, with the responsibility for ensuring that the various parties play by the rules. There is potential for a conflict of interest between these two responsibilities, and if it is not addressed, government-as-customer may change the rules to the disadvantage of its suppliers, who will be unprotected by government-as-regulator.
One of the consequences of this radical shift in government's approach to contracting has been a loss of trust. Government has lost confidence in the integrity and the capability of providers, and there has been a decline in trust for the institution of contracting itself. But at the same time, the industry has lost faith in government. This began with the decision by government in 2010 to extract large cash payments - hundreds of millions of pounds - from its major providers with no legal or contractual foundation. The content of these conversations has never been disclosed, but the chief executives who were called to these meetings certainly understood that their standing with government would be affected by their willingness to cooperate.
Such practices are sometimes used in the private sector, but they are regarded as a particularly aggressive way of managing a supply chain, and courts and competition regulators have taken the view that they are an abuse of bargaining power and 'unconscionable conduct'. There is no question that this behaviour shook the industry and compromised the trust relationship that had built up over the years.
Trust is a form of social capital - in commercial relations, it provides 'order for free' (or at least at a substantial discount). When trust is lost, customers and suppliers must invest more in systems and processes that can serve as substitutes: survey respondents reported that negotiations are now more often dominated by lawyers and compliance experts, rather than people concerned with operations. One participant reported that his company was now sometimes appointing lawyers as contract directors. It does not require a deep understanding of the delivery challenges faced by the human service providers to know that this is not a desirable outcome.