59. The NAO has published several guides to best practice in contracting and makes dozens of recommendations each year to support public bodies improving their approach to contracting. A consistent message from our witnesses and from the NAO is the need for greater engagement and clarity at early stages of a project69. Several Strategic Suppliers called for earlier dialogue with Government and opportunities for a more collaborative approach to finding solutions.70
60. As previous PAC Reports have said, there can be no certainty about what a project is likely to cost if its scope is uncertain and that once a project enters the planning phase costs may increase and departments may find themselves focussing on "trying to make a project appear successful rather than on delivering a successful project".71 In every case the contracting department needs to be very clear on what it wishes to achieve, particularly in fast moving areas such as I.T.
61. The NAO has warned departments of being too quick to arrive at a preferred solution and the political pressure to make early commitments about project cost, innovation or timing.72 The Public Accounts Committee has seen the results of all these.73 Ground-breaking projects are "inherently more risky and much more difficult to cost".74 John Manzoni told us that the complex contracts "tend to be first-of-a-kind" and that fewer should be going wrong in the future as "We need to pilot them and we need to run them in dual-mode and so on."75
62. Baroness Macgregor Smith and John Collington both told us that the Government had been guilty of poor specification at the start of a contract.76 John Collington added that Government had been over reliant on third-party consultants to develop a specification and recommended having more civil servants with relevant commercial experience to develop specifications. Those drafting contracts should also consult and take into account the views of those who will manage contracts in order to minimise the risk of writing a contract that is difficult to manage.77
63. This Committee is accustomed to seeing poor contract specifications leading to wasted public funds. The Government's contracts for Community Rehabilitation Companies required major changes following gross misestimation of the scale and nature of the work, with lower-than-expected volumes and higher overheads for the suppliers running the Companies. The changed contracts will cost the Ministry of Justice an additional £342 million from 2017 to 2022, and the Community Rehabilitation Companies themselves forecast losses of £443 million over the same period.78
64. Poor contract specification leads to uncertainty, which can cause cost increases, delay and failures to deliver. Imprecise scoping and poor information at the tendering phase can also lead to an adversarial environment that makes it more difficult to reach resolution. The Government needs to ensure that contracting bodies balance front line understanding of a service, project management skills and commercial and financial considerations when designing contracts. The Cabinet Office has a role in ensuring that this balance is achieved.
65. The NAO recommend departments calculate robust baselines against which to measure a project's performance.79 Rupert Soames agreed that data received from Government was often inaccurate and that instructions by the Cabinet Office to Departments to collect accurate data were often ignored.80 For example, our inquiry into the Nuclear Decommission Authority's contract for decommissioning 12 Magnox nuclear sites concluded that Government dramatically under-estimated the condition of the sites and had not independently assured its information. Government lack of due diligence on basic data led to the contract cost increasing from £3.8 billion to £6.0 billion, and ultimately being terminated 9 years early.81
66. The Public Administration and Constitutional Affairs Committee concluded that Government's due diligence processes were in urgent need of improvement, and that there were serious flaws with how Government carried out due diligence on Carillion.82 Those flaws might not be limited to just one company. We asked witnesses what due diligence Government did on them and vice versa. Some could not fully recall what due diligence work had been done. Sodexo told us that due diligence on a prison was still "a point of contention" and that they had inherited a facility that was in a "poorer condition than we anticipated".83 We are surprised that any contractor would not assure itself fully asset conditions during the contracting process.
67. Poor-quality Government data is a perennial concern for the Committee-Government needs to be clearer about the problem it is outsourcing and clear when its own data is flawed or incomplete.
68. Recommendation: We recommend that Government set out how it will improve the reciprocal due diligence between the Government and its suppliers. Government has a right to assure itself that a company is competent and capable of delivering the contracted service. The company also has a right to expect the Government to specify accurately what service it is contracting.
69. In response to concerns about variations in contract terms the Government has announced the introduction of a standard contract to improve consistency and reduce disputes about interpretation.84
70. The introduction of a standard contract is welcome and appropriate for the majority of typical procurements. When the Government procurements are more complex, a more flexible and intelligent approach to contracting is required.
71. Recommendation: Standard contracts, which are beginning to be used by Government, should be used widely. Standard contracts should be designed to make it easier for SMEs to bid and make it clearer where variance occurs.
72. Recommendation: The Government must ensure that the procurement process for more complicated projects includes a comprehensive sensitivity analysis and scenario planning.
73. Recommendation: Government should look at the lifetime cost and value of a contract, not just the bottom line at the point the contract is commissioned. Government needs to get better at managing contracts through their life. To do this it needs to facilitate significant uplift in skills
74. In construction, partnering is a relationship of co-dependence between parties on a contract. It is often used on high-risk contracts to ensure coordinated planning and cooperation. Partnering contracts are done on a target cost basis that shares incentives and penalties between partners.
75. Recommendation: Government should consider using a partnering model, as used in construction to create co-dependent relationships, for major, risky contracts to incentivise suppliers to deliver effectively alongside Government, and to ensure Government has proper oversight and skin in the game on vital public services
76. The Government has been accused of being reluctant to negotiate changes to contracts in response to information that was not clear at the start of the contract.85 Baroness McGregor-Smith told us that in the private sector variations that are identified after the start of a contract would be subject to negotiation and a solution found whereas with government contracts there is insufficient flexibility to make changes.86 This was also the view of Philip Chalmers, who told us that Government contracts leave little room for negotiation and that in recent times the Government has adopted a "take it or leave it approach" to contracting. This approach denies suppliers the option of genuine contractual renegotiation.87
77. The greater the size, and length, of contracts the greater the probability of variations being necessary. In certain sectors social or legislative change may lead to contracts containing perverse incentives or illogical performance measures. The speed of technological change means that IT contracts are susceptible to changes in the external environment.
78. Recommendation: There is an attitude that money can be made from contract variance-so that when data is wrong at the outset this can be a way to boost income on a low margin contract. In the middle of this game, the user of the service too often loses out.
79. In certain sectors technical, social or legislative change may lead to contracts containing perverse incentives or illogical performance measures. The speed of technological change means that IT contracts are susceptible to changes in the external environment.
80. Recommendation: Departments should provide the Cabinet Office with a request to enable extensions for contracts. That request should set out the reasons for requiring the extension, the analysis of the benefits of extending rather than rebidding, and an analysis of the performance over the course of the contract and record of performance across all of the company's public-sector contracts.
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69 See Sodexo (SSU0018);Interserve (SSU0020); Capita (SSU0017)
70 CGI (SSU0002); Interserve (SSU0020); Q 220.
71 Committee of Public Accounts, Twenty-Seventh Report of Session 2015-16, e-Borders and successor programmes, HC 643; Committee of Public Accounts, Fifty-Fourth Report of Session 2013-14, COMPASS: Provision of asylum accommodation, HC 1000; National Audit Office, Survival guide to challenging costs in major projects, 21 June 2018
72 National Audit Office, Survival guide to challenging costs in major projects, 21 June 2018
73 Committee of Public Accounts, Fifty-Fourth Report of Session 2013-14, COMPASS: Provision of asylum accommodation, HC 1000; Committee of Public Accounts, Twenty-Seventh Report of Session 2015-16, e-Borders and successor programmes, HC 643; Committee of Public Accounts, Fifty-First Report of Session 2016-17, HMRC's contract with Concentrix, HC 998; Committee of Public Accounts, Twenty-First Report of Session 2017-19, The Nuclear Decommissioning Authority's Magnox contract, HC 461
74 National Audit Office, Survival guide to challenging costs in major projects, 21 June 2018
75 Q 735
76 Qq 21, 104
77 Q 21
78 Report of the Comptroller and Auditor General, Investigation into changes to Community Rehabilitation Company contracts, Session 2017-19, HC 676, 15 December 2017. Committee of Public Accounts, Twenty-Seventh Report of Session 2017-19, Government contracts for Community Rehabilitation Companies, HC 897
79 National Audit Office, Survival guide to challenging costs in major projects, 21 June 2018
80 Qq 356-7
81 Committee of Public Accounts, The Nuclear Decommissioning Authority's Magnox contract, Twenty-First Report of Session 2017-19, HC 461, 21 Februrary 2018
82 See Public Administration and Constitutional Affairs Committee, Seventh Report of Session 2017-19, After Carillion: Public sector outsourcing and contracting, HC 748, para 20
83 Qq 488-9
84 Q 713
85 See Report by the Comptroller and Auditor General, NHS England's management of the primary care support services contract with Capita, Session 2017-19, HC 632; Report by the Comptroller and Auditor General, The Nuclear Decommissioning Authority's Magnox contract, Session 2017-19, HC 408; Report by the Comptroller and Auditor General, Investigation into HMRC's contract with Concentrix, Session 2016-17, HC 915
86 Q 102
87 Q 421