PAC goes easy on Atos, Capita, Serco and G4S – but is this the high water mark for outsourcers?

The UK parliament’s Public Accounts Committee hearing last week, when top executives from four firms were interrogated was a bit of a damp squib really – not the blood bath we had anticipated. The firms (Atos, Capita, G4S and Serco) took some criticisms over the well publicised G4S and Serco overcharging issues, as did Capita over the MOD recruitment contract, which Paul Pindar answered well by blaming the computer system (was that an internal MOD system – or can we blame a different supplier)?

But the Committee seemed to accept that even the “overcharging “ issues were around misjudgement by management of what was reasonable, rather than a real intent to defraud. And all the firms were very accommodating and agreeable to most of the Committees comments and suggestions. Their positive but chastened approach and demeanor seemed to take the heat out of the session, and it wasn't as exciting as we had hoped really.

And as we said here, the fact that the National Audit Office in their recent report did not find the firms making excess profits out of the public sector was another factor that seemed to mitigate the vigour and penetration of the questioning.

Another problem was the sheer breadth of topics covered. From the overcharging, to profit margins, SMEs, the issues around playing an integrator role, transparency, the merits of open-book accounting, specific projects like the Army recruitment – it was all good stuff but somewhat random and so inevitably floated over the surface of many topics  for much of the two hours plus session. It didn't feel at the end as if much had been achieved or conclusions reached.

Paul Pindar was particularly impressive, not surprisingly as he has longer service than the other three people there – he will be missed by Capita when he retires shortly. But really, there was little that was new or startling that came out of the session, and I would say all four came out with their reputations enhanced if anything, which will have been their objective before the start.

Last week also saw the news that another bidder has pulled out of the MOD GoCo competition, and that another competition for three private prisons has been terminated, with management of the facilities remaining in the public sector.  Which leads to a big question – have we reached the high-water mark for major central government outsourcing? Might 2013 be the highest percentage of public sector outsourced activities we ever see?

That could be driven by these issues with recent contracts, which has led some to question the whole basis of outsourcing complex services to the private sector. It’s not just a philosophical or political issue of whether we think private delivery of public services is appropriate or “right”, it is also the practical question of whether the public sector is capable of managing such contracts properly when they are outsourced.

It’s a large and difficult question to answer, and it is quite possible to take both sides of that argument. In fact, that’s what I’m going to do here in two further articles on the topic.

Voices (6)

  1. Dave Orr:

    Down here in Somerset with IBM & South West One the answer to is a resounding “NO” – “it is also the practical question of whether the public sector is capable of managing such contracts properly when they are outsourced”

    Charging money for something that wasn’t supplied is usually considered fraud!

    Does anyone trust large company accounts to really show true net profit after all “fiddle factors” have been applied?

    Not PAC’s best day then…..too wide a scope?

  2. Effwhitt:

    Just compare the attitude and mood of this session with the Companies at the heart of some of the biggest performance issues with the way the Civil Servants were treated at this weeks PAC…

    Still, you never know when you might be looking for a job back in the Private Sector.

    1. Peter Smith:

      Effwhitt, that’s a great point, I will be covering the Monday session shortly but I was pretty horrified at the way people like Godfrey and Mosco were spoken to by the PAC members. I really think if that had been me I might have told them to get stuffed at some point. Maybe a good thing I didn’t stay in the civil service too long.

  3. Bill Atthetill:

    Outsourcing will continue and be on the increase, but they will inject greater rigour in the process, especially post-contract.

    The part of the PAC which made me smile was when MPs asked if it would be helpful to these large outsourcing firms if Departments and Authorities gave them copies of the business cases (final, presumably) as part of the tender documentation. One for your readers and particularly in the procurement communities to answer…

    1. RJ:

      I’m sadly sceptical of the point that “there will be greater rigour in the process”. As has been pointed out on these pages before, the desire to cut short-term costs often undermines the ability to drive long term benefits on such contracts for two main reasons:

      (i) outsourcers recoup the high upfront costs of setting up their operations (including TUPE transfers) with increasing margins in the later years of the contract

      (ii) as internal cost pressures continue, there is little scope to invest in the high quality teams that are needed to manage such complex, high value contracts

      In the private sector (i) is often offset by ongoing process efficiencies which can protect the outsourcers’ margins while reducing total cost. Such processes need to be managed by the people mentioned in (ii) but the public sector can often not be seen to be paying the market rate for such individuals.

      …and that’s before you even get me going on the subject of the disincentive to efficiency of cost plus contracts, which are still prevalent in many public sector areas

      1. Bill Atthetill:

        RJ, I too am sceptical about all the things you say, but as I said (above), they will “inject greater rigour….especially post-contract”. What this looks like, how this will be applied, how effective it will be, who will do it, and where, I don’t know, but I know that Napoleon will use the PAC (and G4S, Serco et al) as an excuse to double his resources in ‘contract management’ – the area where he believes (having been told by Proxima…) that Government Departments are failing to extract value or manage risks (especially reputational ones). I’ve just been told that the Crown Commercial Service, once it peaks (organisationally), will incorporate over 1,000 highly paid staff (well beyond the 500 it has today) – just for ‘common products and services’ (and how many categories can that be? Surely, just a handful?). Be prepared to see that number increase over the coming months. The behaviours of empire builders are predictable if anything.

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