114. Numerous reviews of the Contractual Function within the UK Civil Service have identified weaknesses around capability. In 2014, an internal Cabinet Office review of the management of 73 contracts found that, for 40 of them, the contract management team was not appropriately staffed.255 This lack of capability has led in the past to disasters such as the failure of the Ministry of Justice to appropriately scrutinise the contractors involved in the electronic monitoring contracts. The Ministry later discovered that it was "being charged in ways not justified by the contracts and for people who were not in fact being monitored."256 More recently, in October 2017, the NAO reported that as of August 2017, the Ministry of Defence had 386 unfilled commercial posts-24 per cent of the total number of commercial posts in the department.257
115. The Government decided to change. In recent years, there has been an increasing focus on recruiting individuals with commercial skills into the Civil Service. It is an area where increasing capacity has been a priority.258 John Manzoni told us that the Government is having to reconsider both remuneration and career structures to ensure that they recruit and retain the right skills and capabilities.259 In 2015, Bill Crothers, the former Civil Service Chief Commercial Officer, told the Public Administration Select Committee that this improvement in capability should lead to "fewer contractual failures".260 Recently, the Minister recommitted to this objective: saying that all 30,000 civil servants involved in managing contracts across Whitehall would receive "high quality training".261
116. Wider attempts to reform the civil service included developing cross-departmental Functions, including a Commercial Function. We have addressed these Functions in more detail in our report on Civil Service effectiveness, published in June this year.262 The IfG commented that they thought the reforms were "focussed on the right issues" though.263 Gareth Rhys Williams told us that at the time of our hearing in May 2018 that central Government had 4,000 commercial posts, of which about 300 were empty: a proportion he described as "not bad".264
117. This picture of improvement was supported by other witnesses to our inquiry. The CBI said that improvements in central Government commercial capability since 2010 were "widely felt" by businesses.265 Rupert Soames of Serco described the Crown Commercial Service as "much better" than its predecessors.266 Sir Amyas Morse told us that he thought that the Government's commercial capability "has got stronger", although he warned that he still believed they were at a permanent disadvantage because "the private sector can always pay for and amass more expertise in some areas than the public sector has".267
118. Witnesses from the Government told us that their rescue of the services run by Carillion would have been impossible without this increase in capacity. John Manzoni highlighted the contribution of the strategic suppliers programme, whereby the Government paid particular attention to its most important suppliers. Mr Manzoni said that that "had we had this situation a couple of years ago, I think the outcome would have been significantly different and probably significantly worse for the public sector than it is today."268
119. There are some discordant voices. The Global Sourcing Association reflected this caution, warning of the consequences of churn in central government procurement positions.269 Rupert Soames and Phil Bentley agreed that, despite efforts to build capacity across government, commercial capability varied between departments with some weaker than others.270 Commercial functions have suffered like the rest of the civil service from the effects of churn: the NAO noted in the Home Office in 2014 that there was "insufficient continuity of staff" over the lifetime of contracts.271 The NAO recently reported that the Government's use of central buying through the Crown Commercial Service, by January 2017, yet to prove a success and that major strategic concerns remained about the service.272
120. Professor Sturgess said that while the Government may have "improved" at procurement, there were other skills involved in successfully engaging with the private sector.273 He mentioned that he thought the Government lacked expertise both in "system design" and expertise in the "stewardship" of its supply chain.274 The integration of commercial capability alongside other specialisms within departments has also been criticised: for example, in the new generation of electronic monitoring contracts, the NAO found that "unhelpful disunity between operational, technical, commercial and programme staff".275 Nick Davies agreed: suggesting that some departments like the Department for Education had tried to start understanding their supply chain, but that "other departments should be doing that type of thing much more often".276
121. Although the Government has improved its ability to contract and commercially manage contracts, this may have enhanced its ability to reduce payments to contractors and force the private sector to accept more risks. For example, the procurement of support services for primary care was "supported by commercial experts in the Cabinet Office and subject to reviews by the Major Projects Authority".277 Despite this, as we noted above (Paragraph 60), the Government let a contract where it did not know enough about "achievable service specifications and performance standards".
122. As the Public Administration Committee recommended in 2015, commercial training needs to be supplemented with skills in risk management. They noted then that they had "heard warnings about a lack of focus on risk management" and referred to issues suppliers to the Government faced as a consequence.278
123. The Minister in his reform speech says that it is a "duty of both government and industry alike to restore, repair and rebuild that trust between us."279 He said that he wanted to "put values at the heart of our public services".280 Karl Wilding told us that when commissioning the charitable sector works well, there is an "alignment of values" between the charitable and public sector.281 The Minister referred in his speech to the "Supplier Code of Conduct", which sets out "the standards and behaviours that are expected of our suppliers".282 Serco also have called for a code of conduct: but they argue that this should "set out expected standards of behaviour from Government and its contractors".283
124. The Cabinet Office has invested significantly in commercial capability over the last few years. Outside observers have said that, since that investment, the quality of the Government's commercial management has improved, albeit from a low base. We look forward to the recommendations of the Public Accounts Committee about the future development of the Crown Commercial Service and the Government's commercial capability. We welcome the Government's decision to invest in this area but we remain concerned.
125. The Government must continue its efforts to improve its commercial capability. Currently, this capability is unevenly distributed among departments. The Government also needs to take care that it does not, through having better negotiating capability, merely drive harder bargains with the private sector based on unrealistic estimates of service quality and cost. The Government needs to move beyond such a transactional approach and develop its understanding of the market and its partners in delivering public services. The Government and its contracting partners should share and express the same values. The Government should set out in its response to this Report its future vision for commercial capability, including measures to encourage collaboration within the public sector and verified trust between the Government and its providers. This should include a new code of conduct which would apply to both Government and suppliers and set out expectations of behaviour and shared values.
126. The Government needs to improve, as our predecessor Committee suggested, its understanding both of risk transfer and of costing Commercial skills cannot be seen in isolation from other skills. We believe that it is vital that staff with commercial skills work alongside staff with other skills such as costing, project management, IT and financial planning in letting contracts. They should also work alongside staff with deep subject knowledge and expertise. In its response, the Government should set out its plans to integrate together teams which have IT, project management, costing, financial planning and commercial skills and possess deep knowledge and expertise.
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255 Report by the Comptroller and Auditor General, Transforming Contract Management, Session 2014-15, HC 269, p. 7
256 Official Report, 11 July 2013, Col. 574
257 Report by the Comptroller and Auditor General, Improving value for money in non-competitive procurement of defence equipment, Session 2017-19, HC 412, p. 4
258 See Civil Service Civil Service Workforce Plan 2016-20
259 Q792
260 Public Administration Select Committee, Developing Civil Service Skills: a unified approach, Fourth Report of Session 2014-15, HC 112, p. 10
261 David Lidington, Chancellor of the Duchy of Lancaster speech to Reform, June 2018
262 Public Administration and Constitutional Affairs Committee, The Minister and the Official: The Fulcrum of Whitehall Effectiveness, Fifth Report of 2017-19, HC 497, paras 81-93
263 T. Gash, Government must not ease up on efforts to improve contract management (Institute for Government Blog)_ February 2017
264 Q794
265 Q359
266 Q665
267 Q533
268 Civil Service Effectiveness Oral Session Q376
269 Qq362-3
270 Qq663-4
271 Report by the Comptroller and Auditor General, Transforming contract management, Session 2014-15, p. 54. Public Administration and Constitutional Affairs Committee, The Minister and the Official: The Fulcrum of Whitehall Effectiveness, Fifth Report of 2017-19, HC 497, pp. 20-24
272 Report by the Comptroller and Auditor General, Crown Commercial Service, Session 2016-17, HC 786, pp. 9-13
273 Q431 (Professor Sturgess)
274 Q431 (Professor Sturgess)
275 Report by the Comptroller and Auditor General, The new generation electronic monitoring programme Session 2017-19, HC 242, p. 9
276 Q431 (Nick Davies)
277 Report by the Comptroller and Auditor General, NHS England's management of the primary care support services contract with Capita, Session 2017-19, HC 632p. 16
278 Public Administration Select Committee Developing Civil Service Skills a unified approach Fourth Report of Session 2014-15, HC 112, p. 6
279 David Lidington, Chancellor of the Duchy of Lancaster speech to Reform, June 2018
280 Ibid.
281 Q706
282 David Lidington, Chancellor of the Duchy of Lancaster speech to Reform, June 2018
283 LCC0022 Serco