Pricing of public sector contracts

66. The Government appears to focus unduly on cost in its contracting decisions, with a detrimental effect on service quality. The British Institute for Facilities Management complained about "a continual drive for the lowest price" on the part of the Government.153 The National Council of Voluntary Sector Organisations said that government contracting was "primarily driven by price exclusively".154 Sir Amyas Morse said that it was "certainly not unusual" to see Departments accepting the lowest priced bid when procuring for a service.155 Paul Davies portrayed the Government as "pushing the lowest cost".156 Professor Sturgess wrote that "competitive tendering [is] being actively used to drive down prices, with the fees paid for some mature contracts reduced by 25-30%".157

67. Government contractors are acutely aware of the focus on cost. Rupert Soames told us that "in the four and half years that I have been running Serco I know one occasion" in which Serco had won a contract despite not having the lowest bid.158 Phil Bentley agreed that price was "pretty important" to winning bids.159 The CBI, in a recent survey of 250 contractors, said that only 2% of them thought that service quality was the determining factor in the award of Government contracts, whereas 60% thought it was the lowest initial bid cost.160 David Simmonds, from the Local Government Association argued, this is a "very much live issue" in social care.161 Karl Wilding, from the NCVO, told us that charities are effectively being asked by the Government to "subsidise contracts with their donated income"; on average, he said, large charities lose 11% on each contract they have with the government.162 Consequently he told us these charities are "walking away".163

68. This has consequences. The Government's priority to save costs has frequently led to worse services: in the primary care support services contract, the NAO found that NHS England's assessment of contract risk "focused on the likelihood of it failing to achieve its financial savings target" and "did not adequately assess the risk of Capita failing to provide the service to a good standard".164 Rupert Soames said that he was concerned that "technical evaluations may be fudged to allow technically poor but cheap bidders to continue in a competition, simply because the customer is desperate for the saving".165

69. The Government conceded that it has been overly-focussed on cost in awarding contracts. We were told that this is because it has sometimes struggled to understand the outcomes it requires. John Manzoni told us that "we have not had the sophistication internally to do much other than go for price."166 Gareth Rhys Williams, Government Chief Commercial Officer and Non-Executive Director, Crown Commercial Service, told the Committee that "if we are not acute enough or precise enough about how we evaluate quality, such that each vendor gets eight out of ten, for example, even if the quality scores are 80% of the marks … then price is the only factor" in the procurement. He told us that "we need to get better at assessing quality factors".167 The Minister admitted that "for too long, Governments have been suspicious of the right of companies to make a fair return on their investment".168

70. The Government's approach of pursuing the lowest possible cost and the highest possible risk transfer has flowed from a very transactional approach to contracting. Paul Davies said that the Government have been "very transactional in a lot of their relationships".169 According to Mr Davies, the Government have ignored "things like robustness, commitment and long-term sustainability" in always focussing on the cheapest possible price for a particular deal.170 John Manzoni agreed; saying the Government were trying to widen the factors that procurement teams were considering in evaluating bids.171

71. The Government's preoccupation with price has been noticed by the market and is a matter of grave concern. The Government's failure to assess the quality of services as well as their cost is lamentable. There needs to be a complete reappraisal of how the Government assesses quality of the work it commissions. This will both incentivise providers of services to focus more on quality and ensure there is less chance of providers aggressively undercutting bids deliberately with the intention of potentially renegotiating the contract later on. This is particularly important in cases of complex services for vulnerable people, where the risks and the consequences of service failure are most acute. It is no surprise that the quality and reliability of privately supplied services is so variable if the Government nearly always judges bids on price alone.

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153 British Institute for Facilities Management LCC0020

154 NCVO LCC0026

155 Q525

156 Q581

157 G. Sturgess, Just another paperclip: Rethinking the Market for Complex Public Services, Business Services Association, March 2017, p. 18

158 Q647 (Rupert Soames)

159 Q649 (Phil Bentley)

160 CBI, Partnering for Prosperity: CBI/Browne Jacobson 2018 Public Procurement Survey, June 2018, p. 12

161 Q271

162 Q699

163 Q699