Supplier behaviour in public outsourcing contracts – a guest post from Chris Lonsdale

Yesterday, the UK's National Audit Office issued two important reports on strategic service providers to government, and how they are managed. We'll be featuring our views on these reports next week, but we're delighted to have a relevant guest post today from Dr Chris Lonsdale of Birmingham University.

Like many, I read with interest reports of the recent Cabinet Office summit on government procurement, in particular the comments of the government’s CPO, Bill Crothers. As many will have read, he maintained that, because of poor contract management, public sector bodies “get the suppliers they deserve”. Also, when asked whether he believed that public sector bodies should take some of the blame for suppliers’ ‘bad behaviour’, he answered: “The short answer is yes”.

I don’t disagree, of course, with much of Crothers’ view about the need for better contract management. However, I am not surprised that a government spokesman popped up later in the day to say that it was not the government’s official view that the ‘problems’ with G4S and Serco were “all the government’s fault”.

I think it is very easy to forget that what might seem obvious to those of us ‘in the biz’ may seem much less obvious to the man and woman on the street. We need to remember that UK government ministers for the last 30 years or so (especially the current ones) have, rightly or wrongly, been very forthright about the superiority and integrity of the private sector and the need for it to take over responsibility for public service provision.

The average UK citizen can surely be forgiven then if he or she finds it surprising that, behind the scenes, the actual view taken in government is that private sector suppliers will only perform if they are continually kicked and that, if no-one is watching at all, they will pull quite or even very substantial fast ones.

Richard Vize, writing on outsourcereye.co.uk, a website that provides information for the UK public sector ‘outsourcing industry’, comments: “If contractors falsify records, they are doing so in part because they have spotted that there is no credible oversight to stop them”. This is not how most people up and down the country think.

But even in Crothers’ own utilitarian terms, the issue of supplier behaviour becomes ever more relevant as the government contracts out ever-more complex services. Some contracts are just inherently hard to manage - and expensive to manage, even if you are able to manage them well.

Both of these factors can substantially reduce or overwhelm the benefits derived from superior private sector efficiency, should that exist in relation to the in-house alternative. Both factors also increase in magnitude if a fair proportion of your suppliers are what managerial economists quaintly refer to as ‘opportunistic’.

And, where are all these first rate contract managers going to come from as we move ever closer to the ‘contracting state’ proposed by Nicholas Ridley all those years ago? Will enough of the best contract managers want to work in the public sector or will we add another layer of fun and games through the wholesale outsourcing of public sector procurement and contract management, in a potentially infinite sequence of ‘who watches the watchdog’? And does the government’s openly-expressed and endearingly Tiggerish ideological enthusiasm for public service outsourcing help with any of this?

Chris Lonsdale is from the University of Birmingham and has been working in the area of procurement and contract management for 15 years or so.

First Voice

  1. Chris Halward:

    I do agree with Chris’s view and in particular that “some contracts are just inherently hard to manage”. It is surely critical that public sector managers ability to establish and develop effective relationships is a continuing focus.

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