The question which this review was asked to address is whether the current settings are sustainable, politically and commercially, for complex and front-line services which are at the cutting edge of market development, and attract the most attention in parliament and the press.
Again, it is difficult to obtain hard evidence, but there is no doubt that, over time, the reputational and financial damage caused by underperforming contracts, and the dissatisfaction caused by aggressive procurement and adversarial contract management practices must have an impact on market confidence. The NAO commented on this effect in its 2016 review of the Department of Work and Pensions' contracts for health and disability assessments. One experienced bidder withdrew from this procurement because the department would not listen to concerns about the targets for assessments and the company concluded that it could not meet the department's numbers:
A Departmental review found that tight procurement timetables, inflexibility towards critical assumptions, and lack of transparency risked damaging market interest. . .
The NAO recommended that DWP 'should increase activity to engage providers in learning lessons from recent experience, and to understand barriers to providers bidding for and providing assessments'.11
There have been numerous examples of this behaviour over the past few years, and many providers have found it difficult not to play. One of the participants in the survey for this report acknowledged:
The evidence of the past few years has been that you could beat companies up and they would take it.
For reasons that are explained in the next chapter, companies failed to understand quickly enough that the contracting environment had shifted from a relational approach to a highly transactional one. And for a time, they felt that they had no alternative but to participate in low-price procurements and to take upon themselves unmanageable risks.
Based on the comments of survey participants, it would seem that companies are now being more selective. They are no-bidding contracts more often. They have improved internal governance in an attempt to constrain 'bid fever'. They are refusing to accept unmanageable risks, even if that means being disqualified for submitting a non-compliant bid (and thus wasting the millions spent on bidding).
Of much greater concern is the fact that some companies are questioning their commitment to the entire market. Since 2013, G4S has reduced the share of government business in its portfolio (around the world) from 24% of global revenue to 14%. This represents a significant withdrawal of management capability from the public service economy, in the UK and overseas.12 A senior executive in the London office of a global provider said that ministers and civil servants did not understand that, viewed from head office, government is seen as having a 'difficult investment dynamic' and not worth the pain. He has had to defend their commitment to the UK market.
One chief executive said that there was a lack of respect for industry and a legacy of distrust. Relationships had become antagonistic and adversarial. Board members had expressed the view that: 'If a private company treated us that way, we wouldn't do business with them again'.
The director of a British company which has had considerable success in expanding overseas said that there is now more scrutiny of local bidding and operations at board level: they want to be reassured that they are not at risk reputationally. Another international provider compared their recent experience in the UK with a current procurement in another European country where there has been early engagement with industry and intelligent use of competitive dialogue, with the next year to be spent building the model, reaching a common understanding about objectives, shaping the contract and identifying risks. This was offered as an alternative to the adversarial approach to contracting currently being employed in the UK.
Some ministers and civil servants have taken the view that there is a deep pool of potential providers from which to draw - one chief executive of a large corporation recalled being invited by two ministers to submit a bid for a major multi-contract procurement. When he explained that the market was, in his opinion, poorly designed, he was told that government did not need them anyway - there was a surfeit of potential suppliers wanting to bid. With such an attitude, it is unsurprising that public officials have been reluctant to listen to warnings from experienced providers.
In the short term, government was able to deepen the supply side by drawing in more foreign companies, encouraging suppliers to broaden their service offerings beyond their traditional competencies, insisting upon joint ventures with not-for-profits and public service mutuals, and awarding contracts to government-owned corporations and social enterprises underwritten by government.
However, the costs of entry into a new market are high, particularly for the delivery of complex public services, and if government adopts an adversarial approach to its suppliers, and companies find it difficult to make a reasonable return, then the effect on the supply side will be obvious.
For a time, some companies may bid in the hope that they will be the last standing in the field, and for a time, the government may attract new entrants, but increasingly it will become a game of chicken, and something akin to Gresham's Law will emerge. High risk takers will win contracts at the expense of more prudent companies. Bad contracting will drive out good contracting. Ultimately, this will not be sustainable either, at least not for complex services.
If government intends to continue delivering public services through a diverse and contestable supply chain, it must engage the market to understand why experienced providers are no-bidding procurements and having difficulty in delivering their contractual commitments. This report was commissioned by the industry as a contribution to that process.