This post, written by Derrick Moreira, originally appeared on Public Spend Forum.
Last month, the National Audit Office in the UK issued two reports on the role of government contractors, looking at whether the central government receives proper value when it contracts out public services, and whether it’s managing its suppliers in the most effective way. The reports look specifically at four large contractors—Atos, Capita, G4S and Serco—who together did roughly $3 billion in business with the government last year. G4S and Serco have been in the news lately, with both being implicated in overcharging the government for prisoner tagging, with some estimates putting the cost at $50 million.
The fraud has brought renewed scrutiny to government contracting in the UK, and in its report, the NAO is concerned over whether the government has enough insight into its suppliers, but it’s not clear that the correct questions are being asked to get the results the NAO—and the central government—desires. The NAO states:
What matters most to the taxpayer is whether contracted out services can provide improved quality at an improved overall cost. The level of contractors’ profit is normally only a small component of that cost. However, understanding the contractors’ profits is important; the balance of risk and reward shapes the contractors’ incentives and can distort the contractors’ behaviour if these are not aligned. The balance of risk and reward normally depends upon the structure of the contract and how well it is managed. Better information and understanding of the balance of risk and reward is necessary to improve both.
To continue reading this post, click here.