47. The outsourcing of public service delivery to the private sector is big business with £254 billion of Government spending-nearly a third of Government expenditure- channelled via private companies.68 There are 34 strategic suppliers who earn at least £100 million from one or more Government contracts per year, or are of particular strategic importance to Government.69
48. When Government outsources a public service, it does not contract out accountability, but the Holy Grail for ministers is to try and outsource the risk. The sacking of a probation service provider is a sign that the company stands to lose if it fails to deliver. But there is also an impact on service delivery as the saga of the community rehabilitation companies underlines.70 If there is a failure in the service the taxpayer ends up picking up the tab for both public and private sector incompetence, even when risk is supposedly transferred.
49. There are still too many ill thought through outsourcing contracts. For example, the MoD's £495 million ten-year partnership with Capita, agreed in 2012, to recruit new members of the armed forces. Capita missed its annual recruitment targets every year (with shortfalls ranging from 21% to 45%), the contract cost rose by 37% to £677 million, and the centrepiece new online portal system was rolled-out four years late.71
50. Capita conceded to us that it had underestimated the contract's complexity and had initially entered into the venture more interested in "chasing revenue" and "booking additional contracts versus being a true partner.72 Yet the MoD and Army also share some of the responsibility for the failure of the contract. The contract was over-specified and as the project progressed, the Army introduced contractual changes without piloting and adopted a hands-off approach.
51. The Committee still sees too many examples of where contract design and management mistakes are repeated. Rail franchising, probation reform, the Defence Infrastructure Organisation (a partnership between the MoD and Capita which was cancelled five years early) are just some of these. We have long-standing concerns about the civil service's ability to outsource effectively, and we see too many of the same mistakes repeated too often. I have raised this concern in every one of my Chair's Annual Reports.
52. One of my concerns is about who is ultimate accountability for poor decision-making and inadequate contract management. Sometimes the focus on targets and cost savings drive behaviour and the big picture of why something is being delivered and the end user's needs are lost.
53. These issues are not new or unique to this Government. The No.10 delivery unit was established under a Labour government and the coalition sought to reform and strengthen the commercial skills of the civil service. Cabinet Office Permanent Secretary John Manzoni says that Government has to tackle big and difficult challenges. This is true but some of the repeated errors are not because the challenges are complex-they are just basic errors. Clear 'statements of responsibility' (SoR) and 'responsibility maps', as used in the private sector, could help ensure precise and transparent mechanisms for accountability.73
54. Too often, Government attempts to transfer unmanageable risk or risk which the private sector is never in the best position to manage (for instance, the risk of legal changes or tax increases-both of which are under Government control).74 And private companies have only recently started to say clearly that there are some risks they are unwilling to take on (and only in light of a series of embarrassing and share damaging failures).
55. Carillion's collapse was an interesting example. The Government maintains that it did not bail out Carillion. Carillion believed, right up to the last minute that the Government would help with a rescue package. It did rescue (to a large extent) the services Carillion was running with a series of contingency plans. There was however, a cost to the taxpayer of £148 million.75 So for all the sophistry the episode demonstrates that government cannot allow key public services to fail.
56. Too often, contracting out is engaged with in a purely transactional manner that ignores the quality of service and the knock-on cost of poor service on users.76 The shambolic Govia Thameslink Railway and Northern rail franchising and timetabling mess meant it was commuters who ultimately lost out.77
57. I welcome some of the recent steps taken by the civil service to mitigate these challenges. The Cabinet Office publication of The Outsourcing Playbook, which clearly lays out in updated form the standards and procedures expected from Government Departments, is a step in the right direction.78 Yet there are still gaps and improvements that must be made to ensure that both the taxpayer and end-user of a contracted-out service are not the losers.
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68 National Audit Office, Departmental Overview: Commercial and Contracting, p, 5
69 Committee of Public Accounts, Strategic Suppliers, Fifty-Eighth Report of Session 2017-19, HC 1031, 24 July 2018, p. 27
70 Committee of Public Accounts, Transforming rehabilitation: progress review, Ninety-Fourth Report of Session 2017-19, HC 1747, 3 May 2019, p. 4, p.7-8, p. 11
71 Committee of Public Accounts, Capita's contracts with the Ministry of Defence, Eightieth Report of Session 2017-19, HC 1736, 1 March 2019, p. 3-4
72 Committee of Public Accounts, Oral Evidence: Capita's contracts with the Ministry of Defence, HC 1736, Q. 39
73 REFORM, Please procure responsibly: the state of public services commissioning, p. 50-51 Source for statements of responsibility + responsibility maps p. 50-51
74 Committee of Public Accounts, Strategic Suppliers, Fifty-Eighth Report of Session 2017-19, HC 1031, 24 July 2018, p. 19
75 Report by the Comptroller and Auditor General, Investigation into the government's handling of the collapse of Carillion, HC 1002, 7 June 2018
76 Committee of Public Accounts, Strategic Suppliers, Fifty-Eighth Report of Session 2017-19, HC 1031, 24 July 2018, p. 3
77 Committee of Public Accounts, Rail management and timetabling, Eighty-first Report of Session 2017-19, HC 1793, 27 February 2019
78 Government Commercial Function, The Outsourcing Playbook. February 2019