18. The Government spends around £250 billion a year through commercial relationships, approximately a third of total government spending. The Government contracts for a wide range of goods and services, from relatively generic back-office functions to frontline activities, such as medical assessments for benefits claimants, through to highly specialised markets such as building nuclear weapons. The Government has a unique position in many of these markets owing to its spending power and undoubted ability to pay, although public procurement rules restrict the extent to which it can intervene in the market.12 The Government also brings a unique perspective to contracts in the political context in which decisions are made and the accountability of Ministers, officials and suppliers for the delivery of public services and use of taxpayers' money.13
In markets with few potential providers there are value for money risks. These require different contracting approaches, such as the development of Single Source Contract Regulations in defence equipment procurement.14 As at July 2017, 110 contracts have been brought within the Regulations, with a combined value of £23.9 billion. MoD staff have welcomed the opportunities under the new regime to improve contract management, including the ability to require full transparency of costs within suppliers' prices, which provides greater assurance on value for money.15 Rail franchising has seen several high-profile failures. The Department for Transport (DfT) has attempted to broaden participation and encourage new entrants by simplifying pre-qualification processes, producing phased competition schedules, and reviewing the number and size of franchises.16
19. In more competitive markets, such as construction or facilities management, the Government's ability to 'buy in bulk' should create opportunities for better value through economies of scale. Even in these markets the number of companies that have successfully bid for central Government contracts is a relatively small number of large well-known suppliers that have pursued growth through acquisitions and expansion into new sectors.17. This strategy led to a loss of focus on the companies' core expertise in favour of concentrating on winning contracts to maintain sufficient cashflow to offset balance sheet debt.18 This trend has been reversed to some extent recently as companies have refreshed their senior management and shed non-core parts of their businesses.19 The Minister for the Cabinet Office has recognised that "competition for contracts has often favoured large suppliers," with too much focus on price.20
20. Several of these companies have had significant financial problems and had to undertake large-scale debt reduction through public refinancing.21 John Manzoni, Permanent Secretary at the Cabinet Office, acknowledged that the facilities management sector was not "in a healthy position" and both Government and the industry had to "build rather carefully back out of that".22 The Strategic Supplier risk assessments provided us with an insight into the health of those companies, and their performance against contracts.
21. In our report on Learndirect we considered the Department for Education's failure to cancel the company's contract suggested that the Government might have considered the company to be too big to fail.23 The Carillion board appeared to be under that impression, right up to the point when the company failed.24 We have recommended to Government that Departments "develop a framework for identifying any risk that a commercial provider becomes so large and essential to the delivery of public services that it cannot be allowed to fail, or requires special treatment if it begins to do so."25 The Cabinet Office has undertaken to provide a detailed response by the end of this year.26
22. The Government has allowed a culture to develop in which a small number of large companies believe that they are too big to fail pursued new business with little apparent consideration of their ability to deliver the right service at the right price.
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12 Oral evidence taken before the Liaison Committee on 7 February 2018, HC (2017–19) 770, Q4
13 See Committee of Public Accounts, Twenty-Seventh Report of Session 2015-16, e-Borders and successor programmes, HC 643. The cancelled e-borders scheme was developed against the backdrop of the July 2005 London bombings and the award of the London 2012 Olympic and Paralympic Games.
14 Report by the Comptroller and Auditor General, The Equipment Plan 2016 -2026, Session 2016-17, HC 914, 27 January 2017; Committee of Public Accounts, Twenty-Eighth Report Session 2017-19, Ministry of Defence: Acquisition and support of defence equipment, HC 724; Lockheed Martin UK (SSU0014)
15 Committee of Public Accounts, Twenty-Eighth Report Session 2017-19, Ministry of Defence: Acquisition and support of defence equipment, HC 724
16 Report by the Comptroller and Auditor General, Reform of the rail franchising programme, Session 2015-16, HC 604, 24 November 2015
17 Qq 396, 583, 667; The Collapse of Carillion, Briefing Paper 8206, House of Commons Library, March 2018, p. 18
18 Q 396; Oral evidence taken before the Liaison Committee on 7 February 2018, HC (2017-19) 770, Q 7; See Business, Energy and Industrial Strategy and Work and Pensions Committees, Second Joint report of Session 2017-19, being the Tenth Report of the Business, Energy and Industrial Strategy Committee of Session 2017-19 and Twelfth Report of the Work and Pensions Committee of Session 2017-19, Carillion, HC 679, p. 13; J. Ford 'Carillion's troubles were shrouded in a fog of goodwill' Financial Times, 18 June 2018.
19 Qq 130, 334, 337, 396, 583, 668
20 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018
21 Qq 223, 232, 236, 401, 583, 667
22 Q 680
23 Public Accounts Committee, Twenty-Second Report of Session 2017-19, The monitoring, inspection and funding of Learndirect Ltd., HC 646, p. 3
24 See Business, Energy and Industrial Strategy and Work and Pensions Committees, Second Joint report of Session 2017-19, being the Tenth Report of the Business, Energy and Industrial Strategy Committee of Session 2017-19 and Twelfth Report of the Work and Pensions Committee of Session 2017-19, Carillion, HC 679
25 Public Accounts Committee, Twenty-Second Report of Session 2017-19, The monitoring, inspection and funding of Learndirect Ltd., HC 646
26 HM Treasury, Treasury Minutes: Government response to the Committee of Public Accounts on the Twentieth to the Thirtieth reports from Session 2017-19, Cm 9618, May 2018, p 21