23. The Government has committed to encouraging competition in the market.27 To achieve that goal the Government will need to attract new entrants to the market. The benefits of greater competition, which can also improve innovation and efficiency, need to be balanced with the requirement to have sufficient established potential suppliers to deliver very large or complex projects and to maintain appropriate resilience in the system to ensure continuity of delivery.28
24. The British Institute of Facilities Management (BIFM) argue that Government is a key driver of procurement trends that affect not only its direct contracts but the wider procurement market.29 Despite Mr Manzoni telling us that Government "should not be satisfied" with its relationship with the private sector".30 The Cabinet Office appeared somewhat complacent about the health of certain markets. Coleen Andrews, Director of Market and Suppliers at the Cabinet Office, told us that there were "more than enough suppliers in IT".31 She was content that for most big contracts there were between two and five final bidders and that suppliers were now more cautious about deciding what to bid on.32 However, other outsourced sectors beyond IT do not have the same levels of competition, for example prison management or rail franchising.
25. Departments have attempted to increase the size of the market in the past. The NAO found that for its Transforming Rehabilitation programme, the Ministry of Justice intended to bring new suppliers into the market, and put extensive effort into attracting a diverse range of potential bidders. While more than 700 private, public and third-sector organisations registered an interest, only one of its contracts was won by a supplier from outside the private sector. Voluntary sector bidders were put off by the scale, fixed timetable and associated risks, and a lack of detail about the Ministry's requirements for financial guarantees from bidders.33
26. In sectors such as IT expanding the market may be more achievable and will frequently mean engaging with SMEs.34 The NAO has found that this process has not always been successful. The Ministry of Justice adopted a new commercial approach intended to support SMEs for its new generation electronic monitoring programme. However, high process burdens, financial risk and complex requirements made SME involvement more challenging.35
27. In our Report on Transforming Rehabilitation, we noted that, despite Government attempts to diversify the providers of public services, we had "repeatedly seen a narrowing of the private contractors bidding for, and running, services over time".36 The Minister for the Cabinet Office has announced that departments will be provided with "a 'playbook' of guidelines, rules and principles that will encourage new entrants to the market and build mixed markets of suppliers".37
28. There are several reasons that current suppliers are exiting parts of the market or not bidding for particular contracts. Several of Government's large suppliers operate internationally and less onerous contract conditions and better margins overseas have led to some companies restricting their exposure to the UK public sector.
29. Several of the existing Strategic Suppliers identified the cost and burden of the bidding process, and the level of financial guarantees required by the Government, as disincentives to bid. For new entrants, the concerns of the established suppliers are magnified by their size and lack of experience in the process. Contractors in certain sectors have also emphasised the squeeze on margins and the transfer of risk, including the higher reputational risks associated with operating in the public sector.38
30. David Lidington, the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster, has set out a number of initiatives to improve contracting and maximize the number of alternative suppliers and encourage new providers to enter the market.39 The Minister recognised that "competition for contracts has often favoured large suppliers, with too narrow a focus on value for money", and announced that the Government would set out a number of measures to remove barriers to encourage small business, mutuals, charities, cooperatives and social enterprises to bid for public sector contracts.40
31. We welcome the Minister's announcement that the government will be issuing a 'playbook' to encourage new entrants and look forward to seeing the details of the proposal. However, the language used in the announcement suggests that the Cabinet Office does not intend to take the opportunity to equip itself with powers to enforce its 'playbook'. We recommend that the Cabinet Office upgrade its 'playbook' and other guidance to the status of mandatory requirements.
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27 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018
28 Q 306
29 British Institute of Facilities Management (SSU0015)
30 Q 680
31 Q 761
32 Q 762
33 Report by the Comptroller and Auditor General, Transforming Rehabilitation, Session 2015-16, HC 951 28 April 2016
34 Q 680
35 Public Accounts Committee, Fifteenth Report of Session 2017-19, Offender-monitoring tags, HC 458
36 Committee of Public Accounts, Seventeenth Report of Session 2016-17, Transforming rehabilitation, HC 484.
37 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018
38 British Institute of Facilities Management (SSU0015)
39 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018
40 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018