Rewarding Failure: How Ineffective Private Outsourcing Firms Become the Default Managers of Public Services in the Long-Term

As Byline Times has revealed, around half of the Government’s biggest private outsourcing partners are failing to hit their minimum contractual targets. Working out exactly what has allowed government to get to this place isn’t simple, but it matters. In any given year, around £300 billion – or a third of all government spending – is spent on contracts with private firms.

Maybe the biggest part of the problem, according to those Byline Times spoke to, was that we don’t even know the scale of the problem – as the vast majority of government contracts receive no effective assessment or oversight. 

“It’s like we’ve outsourced so much we don’t even have the intelligence function to know what and where the problems are anymore, and then we’re scrambling round to buy solutions to it from the same set of people who have been letting us down,” says Dr Gavin Hayman, executive director of the Open Contracting Partnership. “Other countries do more performance monitoring than the UK, so there’s no reason we can’t do a better job on it.”

But even when failures make it into public eye, companies are rarely – if ever – removed from bidding. The 40 ‘strategic suppliers’ – a group of 40 elite firms including G4S, Serco and BAE Systems – have actually faced well over £500 million in financial penalties from regulators since 2010.

Two – G4S and Serco – saw massive fines and executives jailed after they were found to have defrauded the Ministry of Justice while working on a government contract. A month later, G4S was given a £300 million contract to open ‘mega-prison’ HMP Five Wells from the same department it had defrauded.

Despite an obligation to exclude any firms convicted of bribery and corruption and the ability to exclude firms with prior environmental, social or labour law violations, neither of the two firms – nor any of the other strategic suppliers – have been barred from receiving government contracts.  

“All public buyers are extremely fearful of litigation,” says Albert Sanchez-Graells, Professor of Economic Law at Bristol University. “If you wanted to exclude say… a company like (the now defunct) Carillion, they’re going to litigate it, because they know that if they are excluded from one contract, they’re potentially excluded from the public sector – and that’s life or death for them.”

Because outsourcing is often introduced in an effort to cut costs, there’s also often an issue with a overly simplistic cost-cutting mindset. 

As Prof Sanchez-Graells explains it, even if a private contract is £95 million versus the £100 million to operate in-house – it’s rare for government departments or commercial teams alike to consider how much of those supposed savings to spend on monitoring and assessing that contract.

The Government has put forward plans to try and solve this – The Procurement Bill – which it claims will make excluding poor performing suppliers easier, among other things. But the plans are flawed, according to those Byline Times spoke to.

“The thing that got away from the Procurement Bill is they didn’t reform the complaints and litigation measures,” says Hayman. “Repeating the same thing again and again and expecting a different result is madness, but it does feel like that’s where procurements been stuck in the UK for a very long time.”

There is a proposed amendment by Conservative MP John Penrose, which aims to save the taxpayer “billions”, by forcing firms and government to set concrete targets at the start of any contract, which depending on if they’re met, would determine whether the contract would be renewed.

Labour has also put forward its own proposals, including adding “clawback clauses” into contracts so that failed providers will have to refund taxpayers’ money. But experts believe more is required than is being put forward by either party.

A major concern is a sense that policy-makers are opposed to the relatively simple solution of better long-term funding for the departments awarding these contracts so that they are actually able to gather information, monitor and punish failing suppliers. 

The aversion to long-term funding settlements often hits illogical levels. “Often, there is no funding for the sort of core positions but there is funding for external services so what happens is these procurement teams don’t have the capacity to oversee the contracts, so they bring in external consultants to do that,” says Prof Sanchez-Graells. “It effectively creates a problem for the public buyers – they need to contract to contract.”

“The idea the governments plan to train staff on new rules, the idea that that’s going to make things better under the new regime, that is just ridiculous,” he went on. “Without a proper level of funding to build up capacities to make sure that there’s more people working in procurement to take advantage of the flexibilities and to impose the rules.”

And the long-term dangers here are very real.

Mariana Mazzucato and Rosie Collington’s recent book The Big Con, for example, argues that the UK’s growing reliance on private outsourcing and consultants in particular (the UK is second-largest market for consultants globally after the US ) actually strips the government of the ability to run these services itself and leaves the private sector as the default, stable managers of state services in the long-term.

“It becomes a self-perpetuating thing, because bad providers will go around saying they have experience – but actually they’re doing bad contracts, but no one knows about it,” says Prof Sanchez-Graells. “It’s like the PPE stuff. I mean, it’s only out of significant outcry that the Government is trying to do something to clawback money, and only from the very high-profile cases. But for many other contracts, they just let it go.”