04.03.19
Government needs better outsourcing data
Source: PSE Feb/March 2019
A spate of recent outsourcing woes show the government urgently needs to improve its understanding of the market, argues Sarah Nickson of the Institute for Government.
Government relies on the private sector to deliver a vast range of critical services – from hospitals, to army recruitment, to major IT systems, to ferries to ease congestion at Dover in the event of a no-deal Brexit. As our recent report found, around a third of government spending is on external suppliers. Even so, we know far too little about this spend because the procurement data the government collects and publishes does not tell us enough about what it buys, from whom, and for how much.
This comes at a time when government outsourcing and procurement face something of an existential crisis. A series of controversial ventures, like the contract awarded to Seaborne Freight, as well as the demise of Carillion and recent troubles at Interserve, have dented public confidence in outsourcing. The government has promised a number of welcomed reforms such as publishing KPIs for major contracts, reviewing the supplier code of conduct, living wills, and improving the civil service’s contract management capability.
These reforms can’t come soon enough, but their success relies on government improving its data collection and publication so it better understands its own supplier market. We called for the government to better monitor the number of bidders for contracts and the involvement of subcontractors in supply chains, and to use unique open identifiers – machine-readable reference codes for procurement transactions – so the data it holds can be aggregated and analysed.
Better data would help deal with one problem we’re particularly concerned about: single bidding for government contracts. Single bidding is a symptom of an uncompetitive market and increases costs for government (and taxpayers). Evidence from around the world shows that publishing more contracting information reduces the chances of single bidding, as well as boosting competition and reducing prices.
Single bidding seems to be on the rise. Companies say risk and shrinking profit margins are leading them to walk away from government contracts. We are seeing single bids on expensive, high-risk contracts dealing with vulnerable citizens. For instance, a sole bidder won a £238m contract for escorting prisoners in Scotland after G4S and Serco, which have track records with similar contracts, pulled out.
Unfortunately, the government does not publish data on the number of bidders for its contracts, despite strong evidence of potential benefits. We do know 23% of public sector contracts in 2018 were awarded without a competitive tender, up from 15% in 2016 – but this information is only available thanks to the work of the Financial Times and OpenOpps.
A better understanding of who is bidding for contracts would also help government improve the diversity of its supplier market and reduce its reliance on a small number of big players. Large companies are capturing an increasing share of government procurement: 25 strategic suppliers accounted for around a fifth of central government’s spend in 2016-17, up from an eighth in 2012-13. This market concentration has left the government vulnerable in the event of a big company collapse like Carillion. Unfortunately, Carillion may not be a one-off. Some of the biggest outsourcers have balance sheets that rely heavily on goodwill and a continuing stream of government contracts, as recent analysis by the Financial Times and Company Watch shows.
The government’s promised reforms will be an important step to securing the viability of critical services and getting the best deal for taxpayers, but we’re still waiting for progress on publishing meaningful, timely, and accessible data needed to make these reforms work.
Top image: Joe Giddens via PA
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