Why won't governments take contract management seriously?

Stuart Lauchlan Profile picture for user slauchlan September 4, 2014
Summary:
A timely reminder from UK government auditors that despite the progress made by reformers, contract management with large vendors remains a badly-practised black art in the public sector.

[sws_grey_box box_size="690"]SUMMARY - A timely reminder from the NAO that despite the progress made by the Cabinet Office, contract management with large vendors remains a badly-practised black art in the public sector. [/sws_grey_box]

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In a roundly critical assessment - Transforming government’s contract management - the UK National Audit Office (NAO) stated that 60 contracts had been reviewed by the government for overbilling, following problems with Serco and G4S’ outsourcing contracts at the Ministry of Justice, and that 34 had “issues with billing to some extent” including over and under-charging.

A total of five government contracts are being investigated by the police or the Serious Fraud Office (SFO).

Specific criticism levelled by the NAO includes:

  • Allowing the providers to ‘mark their own homework’ by relying on the information supplied by the outsourcing companies rather than carrying out their own checks.
  • Lack of ownership with some government departments unable to cite which civil servant had responsbility for making sure that an outsourcing firm was honouring a particular contract.
  • Government is too locked in to dealing with companies that are “too important to fail” on the basis that their collapse would cause far reaching disruption to public service delivery.
  • Gaps between the numbers and capability of staff allocated to contract management and the level actually required.
  • Limited interaction between finance, commercial and operational contract management functions.
  • Senior management engagement with suppliers has not been widespread across government.
  • A lack of meaningful incentives for innovation that inhibits shared approaches to problem solving and service improvement.
  • Government is not fully using commercial incentives to improve public services with levels of payment deductions allowed by contracts are often insufficient to incentivise performance.
  • Government does not have sufficient understanding of the level of risk it is retaining on contracted-out services with none of those examined in the cross-government review sharing risk registers with the contractors to ensure all understood who was managing what.

Ultimately, the NAO distills all this down to four major pain points:

  • Failure to recognise the value of contract management meaning that it is seen as a way to avoid things going wrong, rather than unlocking value.
  • Senior managers in central government departments don’t take contract management seriously with departments not adapting governance to the expanding role of government contracting.
  • Lack of visibility over contracts with senior managers often only engaged on contracting issues to firefight problems and putting little pressure on teams to improve the information they rely on to manage the contract.
  • Government has a permanent disadvantage in commercial capability with the Cabinet Office estimating that government as a whole deploys less of its specialist commercial resources on contract management than the private sector.

On this last point the NAO concludes gloomily:

Yet it is doubtful that the government can improve its capability to be able to have the best contract managers on all its contracts. It will not pay either to bring in or retain commercial experts to match the combined expertise of its contractors.

Right direction

There has been progress however, and the general direction of travel is the correct one, argues the NAO in the report, but there’s a long way to go yet:

Too often contract management has been seen as delivering the deal that was agreed when the contract was signed. This has meant that contract management has been seen as a way to avoid things going wrong, rather than unlocking value.

Traditionally, the procurement profession has had a low status in the civil service, while contract management has been seen as low status within the procurement profession.

The profession has lacked the sway over colleagues to implement good practice and struggled to attract the best talent and skills.

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Source: NAO

Amyas Morse, head of the NAO, said:

For several decades, governments have been increasing their use of contracts with the private sector to provide goods and services. This has produced successes but also thrown up major new challenges, which are not easy to surmount.

Not the least of these is the need to build up the commercial skills of contract management staff, both in departments and in the centre, and enhance the status and profile of their role.

Current reforms are going in the right direction and government is taking the issue seriously. There is, however, much to do, and the acid test will be whether the resources and effort needed for sustained improvement are carried through into the future performance of the departments in procuring and managing contracts.

The NAO makes several recommendations:

  • Government needs to put in place the systems and processes to enable the effective oversight and management of contracts.
  • Government needs to ensure responsibility for the delivery of contracted-out services and the control environment rests with contractors.
  • Government needs to find ways of making the most of its commercially experienced people.
  • The Cabinet Office should set up a cross-government programme to improve contract management, building on the work of the Markets for Government Services (Officials) group.
  • HM Treasury and the Cabinet Office should continue to use commercial capability reviews to ensure reforms are embedded.

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Source: NAO

Reaction to the report was predicable.

Margaret Hodge MP, Chair of the Committee of Public Accounts, which is preparing its own report on public procurement, commented:

More and more of our public services are now being delivered by private companies, who between them received a huge £40bn last year from contracts funded by the British taxpayer. These companies must be held to the same high standards as any government department, so that the public can have confidence that they are delivering the quality of service we are entitled to expect. With so much taxpayers’ money at stake, departments must urgently put an end to the "out of sight, out of mind” mentality that has led them to be in this weakened position before even more taxpayers’ money is wasted.

Jim Bligh, Head of Public Services policy at the Confederation of British Industry, said:

The NAO is right to highlight that the Government sometimes sees contract management as an afterthought, focusing too much on getting the deal signed and too little on what will happen when the ink dries.

The Government has a sensible programme of commercial reform but progress is too slow. It needs to focus on quickly building up the skills and capabilities of the Civil Service to manage the growing complexity of contracts. And the Cabinet Office must have the necessary levers at its disposal to make sure that Whitehall departments adopt new ways of working.

The industry recognises that it also needs to act differently. Wider use of open book accounting would make sure that the Government has better access to financial information about its contracts with the private sector, and improve accountability for the taxpayer.

For its part, the Cabinet Office, which has been spearheading procurement reforms, commented:

The NAO acknowledge our work to overhaul government’s commercial activities which saved taxpayers £5.4billion last year alone, against a 2009/10 baseline.

Compared to 2010, when there was no central grip on procurement, we are now taking a hard hitting business-like approach to managing contracts with suppliers.

My take

Much to do, much to do. We’re at an interesting stage in the UK political cycle with a General Election in May 2015 looming and no guarantee at all that the current reformers in the Cabinet Office will be in place after that. Vendor willingness to engage further in the reform process is likely to be diminished in some quarters until they see where the land lies.

But the basic problems outlined in this UK government report are pertinent in other countries. In the US, where the new Digital Service for government is finding its feet, the conclusions and recommendations of the NAO might make for useful reading.

 

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