Keeping the contracts afloat

The media has an apparently insatiable appetite for tales of disastrous Whitehall outsourcing projects, abandoned IT schemes and deeply flawed procurement deals – and the government, unfortunately, seems determined to test its hunger to the limit. Indeed, whilst the Labour government certainly had its fair share of failures around procurement – generally involving price inflation or abandoned projects in the IT arena – under the coalition their frequency seems, if anything, to have increased.

Stung by scandals such as those around G4S’s failure to deliver on its Olympics contract, fraud amongst providers of the Work Programme and the collapse of care provider Southern Cross, the coalition has been moving to sharpen up government procurement. And the latest furore, over revelations that Serco and G4S have been overcharging the Ministry of Justice, prompted chief procurement officer Bill Crothers to take a long, hard look at ways to head off this apparently endless series of delivery failures.

He set out to examine 28 government contracts held by the two suppliers, and his report – published in December – presents a series of reforms designed to strengthen the Cabinet Office’s ability to identify and prevent emerging problems. Meanwhile, the Ministry of Justice has stripped G4S and Serco of responsibility for tagging criminals in the UK, passing their contracts to rival outsourcing firm Capita.

The review’s findings

The problems at Serco and G4S involved their charging the MoJ for tagging non-existent offenders – including people who were in prison or dead. While the Serious Fraud Office has started an investigation into both companies, Crothers’ review “found no evidence of deliberate acts or omissions by either Serco or G4S leading to errors or irregularities in the charging and billing arrangements”. It does, however, identify “deficiencies in key controls being applied to the invoice and payment processes”, resulting in a risk of over-charging, and says that in many public contracts there is a “general over-reliance on supplier’s self-reporting their performance with insufficient verification checks being performed by the department”.

The report finds good practice in many departments, including the Department for Transport and the Foreign Office, but concludes that the majority of contracts examined featured weaknesses which require urgent attention. Though the review only focused on contracts with two suppliers, it notes that “the findings and themes are generic, and are therefore not restricted to the two suppliers.”

Crothers, who examined contracts worth more than £5.9bn in total, concluded that “allowing this situation to continue is not an option” and made eight recommendations – five of which propose additional or strengthened responsibilities for the Crown Commercial Service (CCS), Crothers’ Cabinet Office team (see box below). CSW has spoken to procurement experts and Crothers himself to understand the implications of his recommendations, and to assess their likely impact on procurement and contract management.

The proposals in the review include a call on departments to strengthen their internal audit capability to cover contract management, as well as to “consider broadening the scope of their commercial director responsibilities to embrace both procurement and contract management activities”. These changes should help address the ‘Cinderella’ status of contract management – work which is often handed to relatively junior staff, after more qualified people have agreed and signed the contracts – and strengthen departments’ ability to review and appraise their own work.

Though departmental capabilities are improving, Crothers believes there’s a need for the CCS to improve its oversight of departments’ work and its ability to intervene when things are going awry. In part, this will be achieved through strengthening the “functional leadership of the commercial profession within government”: Crothers heads the profession, and clearly believes that it’s not fulfilling its potential to coordinate and improve departments’ commercial work. His plan goes well beyond this, however, tasking the CCS with setting out best practice guidelines, overseeing contracts across government, and developing an ability to send in troubleshooters when required.

Here, again, Crothers emphasises the need to improve government contract management: the CCS will “develop a strong contract management capability” so that it can lay down benchmark standards and provide advice to departments. This work is likely to be welcomed in many parts of government: as our round table this week reveals, many civil servants feel that contract management needs more attention.

Crothers’ other recommendations involve attaching a “focus on contract management” to the Cabinet Office spending controls and the Major Projects Authority’s oversight role, with the aim of enabling the CCS to spot ailing contracts. And he explains that CCS, “working in partnership and with the agreement of departments,” may in future send teams out into delivery departments to help those which lack capability or which are facing particular problems. Finally, the plan requires departments to develop detailed plans for implementing the relevant recommendations, and to provide their plans to the CCS by the end of February.

In short, Crothers’ plan involves enacting in the commercial field – particularly in contract management – the kind of changes we’ve seen in project management, with a central body that oversees and approves major programmes, offers advice and support, and helps to coordinate and train staff across Whitehall. And most external experts are supportive. For example, Peter Smith, editor of procurement and supply chain management blog Spend Matters UK/Europe, welcomes the focus on improving internal audit capabilities and extending the role of departments’ commercial directors. And Andrew Coulcher, business solutions director at the Chartered Institute of Purchasing and Supply, describes the recommendation that the CCS sign off major contracts before they’re finalised as a “step in the right direction”.

The new step-in right

Whilst Smith applauds the overall approach, he warns that “the devil’s in the detail”: in how the reforms are delivered. And Coulcher says the CCS will have to “be careful and make sure that they don’t end up being inundated” with requests to step in: he argues that it should restrict its interventions to high risk projects such as “a rail franchise, HS2, or a battleship programme”.

Others are less enthusiastic. The big suppliers, of course, may fear that a better-organised Whitehall commercial operation will offer less opportunities for wide profit margins. But one supplier representative – speaking on condition of anonymity – has a point when he argues that “putting this sort of [contract management] capability in the centre, which by its very nature is at arm’s length from the actual services delivered,” risks divorcing commercial work from the business owners who best understand what their department is trying to achieve. He argues that the CCS should only have powers to approve and intervene on a temporary basis, and that the CCS should work to support departments rather than to “supplant them”. Developing a new relationship, he adds, will be awkward in light of a “long-standing culture in Whitehall of autonomy in the departments, who are their own individual little fiefdoms”. And he recalls witnessing an “interesting tension” between departmental procurement officers and CCS repres
entatives: there’s a danger, he says, that the Cabinet Office will undermine departments’ authority.

Asked about these concerns, Bill Crothers is adamant that his unit will be working alongside departments, offering help not censures: the two, he says, have a positive rather than an “adversarial relationship”. The CCS, he adds, will “work in consultation with the departmental leadership to determine whether it’s appropriate to step in”. And if an intervention is agreed, he says, the CCS will not be “arriving with big boots to walk all over everyone”. Instead, “the department might say: ‘We think it would be better if [the CCS] were to take responsibility for [the contract]”, inviting the CCS to come in.

Who should request the step-in?

So would the onus be on the department to request the step-in, or the CCS? This would be determined on a “case by case basis and in partnership”, Crothers says, adding: “There is no question of us being able to force it on the department; that’s not the construct of the relationship”. And what if a department fails to detect that there are problems with a particular contract? After all, Coulcher highlights a danger that civil servants who’ve worked on a big project for a long time can become unable to “see the wood for the trees”, missing emerging signs of problems. But Crothers sidesteps all invitations to sound tough, insisting that the CCS and departments are all “working with the common goal of getting better value and getting better service”.

The CCS exists to “help develop, implement and encourage commercial common sense”, he adds, and to deliver a service to departments: he tells his officials to avoid using phrases such as ‘you must’, ‘no’ or ‘you can’t’ when dealing with departmental staff, and instead to use language which “is empathetic, demonstrating understanding of the situation” such as ‘we’ (instead of ‘I’) and ‘could you consider’.

Coulcher suggests that the risk of conflict could be minimised by clearly defining the circumstances under which the CCS would step in; he adds that as long as the CCS “adds value”, the risk of facing resistance from departments will be minimised. And John Collington, a former government chief procurement officer and now chief operating officer at outsourcing and consulting company Alexander Mann Solutions, says that in his experience, departments have “always been open to scrutiny when it comes to contract management”.

The question of accountability

Crothers’ plans present one other complexity: that of accountability. Both Coulcher and Smith point out that departments’ accounting officers are legally responsible for all the money they spend, raising questions over whether they’ll be able to hand contract management to the CCS. What if a minister is called into a select committee to answer for a project passed to CCS, says Smith: asked why a contract hadn’t been better managed, they might have to respond: “We don’t manage it anymore; Cabinet Office do”. Furthermore, when more than one party is involved in running a government project, then the result can be confusion and recrimination. The supplier representative argues that the Universal Credit programme was hampered by a comparable type of “dual responsibility” – in that case, between the Department of Work & Pensions and the Cabinet Office digital and spending control teams – which contributed to delays and cost over-runs.

In reality, the CCS poses no more of a threat to parliamentary accountability than the Major Projects Authority. But some commentators do worry about the risk that sending central teams into departments can confuse management lines and lead to clashes, as in Universal Credit: Smith argues for a strengthening of departmental capabilities, rather than the creation of a troubleshooting team at the centre. The CCS is recruiting fast, with the aim of expanding its 600-strong workforce to around 1,000 by 2016-17. But Smith “would have liked to have seen a recommendation that says: ‘The procurement director in each department should have responsibility for coming up with a plan to show how they’re going to make sure that their department has the contract management skills, capability, systems, processes in place to meet their own departmental needs’.” The current review, he adds “smacks of CCS building up a strong contract management capability, rather than the departments developing it”.

Will the rising tide lift all boats?

Smith acknowledges, though, that building capability at the centre is “easier than getting all departments to get good at procurement and contract management: you can bring lots of really good people into the centre, if you can find them”. And Collington, who worked as commercial director at the Home Office before becoming chief procurement officer in the Cabinet Office in 2010, points that the report does demand departments improve their skills alongside the CCS. “The simple fact is that the centre and departments both have to find a way to work together; and I think this report lays out a clear road map of how that should happen,” he says. Crothers adds that the report doesn’t emphasise developing skills within departments “because it’s already in hand”.

Collington adds that the key to improving contract management capabilities across government is a “continuous investment into attracting, retaining and developing the best capability”. For government to be able to manage these “complex contracts”, he adds, departments and the CCS require the “appropriate level of investment”. This view is also held by the anonymous supplier, who points out that Crothers’ report identifies several instances of inadequate resourcing of contract management. The priority should be for departments to recruit more contract management staff, he says.

This brings the argument back to the well-trodden controversy over civil service pay controls, criticised by many – from the government’s lead non-executive director Lord Browne down – for weakening the government’s ability to bring in strong commercial skills. And the fact is that the CCS is both more likely to win approval for hiring a clutch of highly-paid commercial experts, and able to deploy specialist expertise more efficiently than the departments. In today’s financial climate, if commercial skills are required, the options may be the CCS way or no way.

A Cabinet Office spokeswoman summarises the CCS’s emerging role: it will, she says, “ensure we act as a true single customer: buying the essentials for the whole of government in the most efficient way possible, whilst freeing up departments to focus their procurement expertise on what is unique to them. It will be at the service of departments, setting standards, providing advice and guidance, and ensuring that common goods are bought once and at the best price so departments can focus on what they are best at.”

If the Cabinet Office can indeed achieve that goal, it will deserve applause. For its stated policy has the right aims: Collington says the plans should help avoid failings in contract management; and even Smith, who’s sceptical on the plan’s motives and practicalities, thinks the recommendations will improve things. However, developing and deploying a stronger central team to step into departments’ remits when required is an activity fraught with difficulty. Departmental staff will look askance at the CCS’s growing role, and it will be down to Bill Crothers and his team to calm those fears. If he can pull it off, the result should be better commercial work across government, and a reduction in that steady stream of failed outsourcing projects. But if the Cabinet Office’s approach is too aggressive, or its ability to integrate its work with that of host departments too weak, the result will be that the tally of flawed commercial projects will continue to rise – but this time, it’ll be accompanied by a flow of
media stories about the clashes between departmental staff and the troubleshooters sent in to assist them.