Government outsourcing contracts set for automatic extension because of Brexit

SUMMARY:

Outsourcers could well be one of the groups rubbing their hands with glee as reports suggest Brexit could lead to hundreds of contracts being renewed.

It looks as though Brexit is set to derail, or at least significantly delay, the government’s digital and innovation agenda, as hundreds of outsourcing contracts could be automatically extended due to resources being focused on the UK’s exit from the EU.

According to a report in the Financial Times this week, more than 250 contracts were either close to expiring or had already expired in 2016-17 and one procurement adviser said “Brexit has pushed them down the list of priorities so there are lots of extensions and re-extensions of existing deals”.

The Cabinet Office and the Government Digital Service have made it perfectly clear in recent years that one its “most important red lines” is that no contracts should be automatically extended, as this prevents competition and will likely lead to a bad deal for taxpayers.

There has been a drive to get departments to rethink their outsourcing deals, of which there are many, as they more often than not have resulted in a lack of innovation and high costs. Departments have been urged to either insource some of their capability or to break up these outsourcing deals into smaller, more innovative cloud-based solutions.

However, that was before the result of the EU referendum last June, which has thrown the government into chaos and has presented the Civil Service with an uphill challenge to untangle itself from the European Union.

It is expected that departments will have to allocate a significant amount of their time to the challenge of Brexit, which has been made worse by a 26 per cent reduction in civil servants over the past decade due to austerity measures (NAO).

Earlier this year, experts at the Think Digital Government conference in London predicted that Brexit could cause havoc on the digital agenda in Whitehall. Director of Digital, Methods Digital Michael Beaven, said:

I worked with Francis Maude [ex-Cabinet Office Minister] and Mike Bracken [ex-Director of GDS] when digital change and transformation was the biggest show in town but now Brexit is the biggest show in town and it will consume resource and attention. Providing better services to citizens and making organisations work better will inevitably take a back seat.

Whilst, researcher at the Institute of Government Joseph Owen said that already delayed IT programmes are likely to be held back further. He said:

These projects have already been hit by spending reduction and you only have to look at the NAO report to know that the majority of government IT projects are struggling to meet delivery timescales. Last year half the IT projects were on amber or amber red. Brexit is likely to make the targets of these projects even more difficult to meet.

However, the Cabinet Office told the Financial Times:

The government is focused on delivering our commitment to leave the EU and getting the very best deal for the UK, and we are equipping ourselves with the right people and the right skills across government to make this happen.

Red lines

One of the largest contracts that may need to be extended is HMRC’s Aspire contract, which is outsourced to Capgemini, Accenture and Fujitsu, and is responsible for the tax collector’s primary back-office systems. It has cost nearly £8 billion for the ten years to March 2014 and has already been extended once.

The National Audit Office has already warned that an extension of Aspire could be possible, despite it being a key priority for HMRC, and is seen as the flagship example of the Cabinet Office’s agenda to run government IT differently.

The Cabinet Office has a number of red lines in place that are meant to force change within departments’ procurement teams, create more competition and introduce greater innovation. For example, a GDS and Cabinet Office blog states:

No IT contract [to be let] over £100 million in value – unless there is an exceptional reason to do so

When goods and services are bundled together into large contracts, you restrict competition. Only those suppliers who can supply everything requested, and to this scale, can take part. For old-style ICT outsourcing contracts, for example, there are only a handful of suppliers in the world who would bid.

It is more effective to start with user needs. Buying particular goods or services separately allows a wider range of suppliers to bid, and helps include suppliers who specialise in those particular services.

It also states that there should be no automatic contract extensions. The blog continues:

This is the most important of the red lines. If a department extends a contract, it is preventing any competition, and it will likely not be getting the best value for money for the taxpayer. Departments can avoid this by doing the right planning around contract end dates, and by publishing this information. These measures help potential suppliers know when opportunities are available.

There may be cases where extending a contract offers the best value for money. Departments should consider this well in advance with enough time to run a competition if needed.

Whilst Brexit is likely to constitute an “exceptional reason”, it does bring into question the validity of the ‘red lines’ going forward and could mean that the government’s Transformation Strategy is considered less of a priority compared to the challenge of Brexit.

It has been argued that Brexit could prove to be an opportunity for government to transform its services, as it needs to create new systems as it separates from the EU. For example, GDS deputy director of standards assurance, Olivia Neal, recently said:

I think there is a huge opportunity through Brexit. I think for us as a government, for us to deliver what we need to do over the next three years, there’s a real opportunity to use the foundations we have put in place, working in agile ways, bringing together policy making and service design – if we don’t do that, we aren’t going to deliver the things we need to.

I think internationally we need to keep talking to people around the world. I think keeping those networks open, not just in the EU, but around the world, helps us build those links with countries like Australia, America and Canada – who are in really similar positions to us.

My take

Whilst Brexit could be an opportunity for the digital agenda in government, an opportunity to bring policy and service design closer together, I’m not sure that this will reconcile with the distraction that Brexit proves to be.

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