51. Outsourcing has been pursued by successive Government to try to secure better value for money, reduce costs and improve quality of service. For Government, outsourcing may also provide access to greater innovation and transfer risk from the taxpayer to private companies.57 We have not considered the arguments for or against the principle of outsourcing public services as this falls outside of the Committee's remit.58 We are, however, concerned about the factors that drive the decision to outsource and the structure of subsequent tenders and contracts.
52. The Treasury's Green Book includes guidance to departments on evaluating projects and sets out the process for approving a project to ensure that it delivers value for money. The Green Book advises that risks should be "borne by the organisation that is best placed to manage and monitor" them.59 Several of the Strategic Suppliers expressed concern about the scale of risk transfer encompassed in government contracts. Serco's CEO, Rupert Soames, told us his main concern was the transfer to unmanageable risk to suppliers "in direct contravention of what is in the Treasury Green Book and the Cabinet Office guidance".60 For example, Government may require Suppliers to sign contracts that transfer the risk of any changes in the law or increases in taxes, even though Government has control over what those changes could be.61 Rupert Soames further cited council tax rises as a risk transferred to suppliers, even though they are not best placed to manage it.62
53. Mr Manzoni also accepted that there was some merit in the Strategic Suppliers' concerns.63 He told us that:
When outsourcing first began in industry, the presumption was that if you lobbed it over the fence they would sort the problem out. That rarely works. The private sector cannot sort your problem out. You have to be clear what your problem is and then contract in an intelligent way for it. I think we still have a bit of that going on occasionally-not across the board, but occasionally.64
54. The NAO has reported on projects where the Government has had to step in when the risks are too great for the private sector. In 2002, the NAO reported, for example, that the Ministry of Defence considered that it had transferred the risk of cost overruns associated with its nuclear submarine facilities at Devonport to the private sector. However, the Department ultimately funded the cost overruns as it had nowhere else to go and needed to ensure the supplier remained viable.65 Mr Manzoni accepted that "there are certain risks that only the Government can take, and we need to be better at recognising what they are and not trying to outsource them."66
55. Public sector contracts will often have a political context that does not exist in the private sector. Although Ministers may have little direct involvement in the contracting process they can put pressure on civil servants to make early commitments about what a project will achieve and to deliver results quickly.67
56. The NAO's Survival guide to challenging costs in major projects noted that Ministers may get involved in executive decision making, which can confuse accountability, and lead to decisions not being sufficiently tested. For example, our report on Hinkley Point C found that the financing structure of the deal had been determined as a matter of policy and that better value for money alternatives had therefore not been explored.68
57. Our evidence has highlighted a concern that contracting bodies do not always have a sufficiently clear understanding of the service that they are outsourcing.
58. Public bodies can consider outsourcing to be an opportunity to transfer problems to a private company. Transferring risk is illusory in most cases as the government retains the ultimate risk of failure to deliver certain services.
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57 See Public Administration and Constitutional Affairs Committee, Seventh Report of Session 2017-19, After Carillion: Public sector outsourcing and contracting, HC 748; Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018; HC Deb, 27 June 2018, col 882
58 UK Parliament, Our Role-Public Accounts Committee, accessed 12 July 2018
59 HM Treasury, The Green Book: central government guidance on appraisal and evaluation, March 2018, p 30
60 Q 560
61 Q 355
62 Q 374
63 Q 690
64 Q 690
65 Report by the Comptroller and Auditor General, Ministry of Defence: The Construction of Nuclear Submarine Facilities at Devonport, Session 2002-03, HC 90: 6 December 2002; see Report by the Comptroller and Auditor General, Survival guide to challenging costs in major projects
66 Q 690
67 National Audit Office, Survival guide to challenging costs in major projects, June 2018; Qq 740-741; see Committee of Public Accounts, Third Report of Session 2017-19, Hinkley Point C, HC 393
68 Committee of Public Accounts, Third Report of Session 2017-19, Hinkley Point C, HC 393