NAO cautions Cabinet Office over firm hand with large suppliers

The National Audit Office (NAO) has warned the government over its recent heavy handed approach with large suppliers, claiming that if the public sector is to stay innovative it needs to find more effective ways of working with the private sector.

The Cabinet Office has implemented a number of reforms in recent months in an attempt to squeeze out the handful of traditional suppliers to the public sector by working with more SMEs and transforming contracts to introduce multi-million pound savings.

Some £840 million has been saved with strategic suppliers between 2012-2013 thanks to the reforms.

However, the NAO has warned that the Cabinet Office is currently focused on short-term savings, by adopting a firm approach with departments and suppliers, but risks missing out on longer-term value for money through innovation and investment.

It claims that a balance needs to be struck between tough negotiations and maintaining a relationship with suppliers in the long term if government is to maintain competition in public sector markets.

“Contracting with private sector providers is a fast-growing and important part of delivering public services. But there is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly, and of departments themselves not being on top of things,” said Amyas Morse, head of the NAO.

“While some government departments have been admirably quick off the mark and transparent in investigating problems, there is a clear need to reset the ground rules for both contractors and their departmental customers.”

A recent example of cause for concern with using large suppliers for big public sector IT projects is the Department for Work and Pension's flagship Universal Credit project – where hundreds of millions of pounds of IT assets have been written off.

Some of the traditional suppliers have also begun to hit out at the government's recent reforms, where CGI (previously Logica) told Computerworld UK that if they continue then companies will begin to take their investment elsewhere.

In addition to the NAO's warning to the Cabinet Office, it has also called for increased focus on whether contractors' profits reflect a fair return and urged the government to better understand whether their interests are aligned with that of the taxpayer. It states that transparency over rewards that suppliers make is currently, at best, limited.

It urges for greater transparency over contractor performance and the use of contractual entitlement to information, audit and inspection. The NAO suggests that this should be backed up by the threat of financial penalties and being barred from future competitions if things go wrong with a contract.

The NAO said: “We therefore welcome the strong response by the Cabinet Office and Ministry of Justice once contracting issues were uncovered with the electronic monitoring contract.”

Both Serco and G4S have come under intense scrutiny and face criminal investigations following accusations that they over-charged on MoJ contracts for electronic tagging.

“Contracting with third parties is an important element of public service delivery,” said the NAO.

“But there is currently a lack of transparency over the role that contractors play, they business that they do, the rewards that they make and the way that they perform. The NAO [has] cast light on some of the features of government contracting and the way the Cabinet Office is working to improve government's management of strategic suppliers.”

Copyright © 2013 IDG Communications, Inc.

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