Whitehall improving on contract management "but a lot more to be done": NAO
The major spending departments in central government, together with the Cabinet Office and the Treasury, have improved management of £40bn-worth of contracts with the private sector but “a lot remains to be done”, the National Audit Office has said.
In a report, Transforming government’s contract management, the spending watchdog called for widespread changes in the culture of the civil service and its capability to procure and manage commercial contracts.
The NAO highlighted the Government’s announcement in July 2013 that there had been significant overbilling dating back to 2005, principally in the Ministry of Justice’s electronic monitoring contracts with G4S and Serco.
The watchdog and the MoJ also received around the same time allegations from a whistleblower about operational practices at G4S.
The Government subsequently secured payments of £179.4m from contractors related to overbilling issues.
The MoJ also commissioned further reviews of its other contracts and the Cabinet Office did the same for the major G4S and Serco contracts across government. The Home Office and DWP also commissioned internal reviews of contracts with a range of contractors.
“In most of the contracts reviewed across government there were weaknesses in the way those contracts were managed,” the spending watchdog found. “Widespread problems were found in administration, including poor governance and record keeping and capacity issues.”
In relation to governance, the report said departments lacked visibility of contract management at board level and lacked senior-level involvement.
It also found that Government did not have the right people in the right place for contract management. “There were gaps between the numbers and capability of staff allocated to contract management and the level actually required.” Senior managers were also accused of not taking contract management seriously.
In addition the Government was not fully using commercial incentives to improve public services. “Levels of payment deductions allowed by contracts are often insufficient to incentivise performance. Open-book clauses were rarely used.”
There was also insufficient understanding of the level of risk Government was retaining on contracted-out services.
The NAO reported that subsequent reforms were “going in the right direction”. However, it called for further steps to be taken to transform the management of contracts. In particular the Government needed to:
- put in place the systems and processes to enable the effective oversight and management of contracts;
- ensure responsibility for the delivery of contracted-out services and the control environment rests with contractors; and
- find ways of making the most of its commercially experienced people.
The watchdog made two recommendations to the centre of government:
- 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.
The NAO praised the MoJ for its comprehensive improvement plan, saying it had the potential to transform how it manages its contracts and that other departments could learn from it.
Amyas Morse, head of the National Audit Office, 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.
He added: “Current reforms are going in the right direction and government is taking the issue seriously. I welcome the fact that the Ministry of Justice, in particular, has responded promptly and positively with a wide-ranging improvement plan.
“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.”