Government’s management of service contracts

Edward Leigh MP, Chairman of the Committee of Public Accounts, said:

"Central government pays out to external suppliers many billions of pounds each year for vital support services in such areas as IT and facilities management. But officials are more interested in the process of letting contracts than in managing them afterwards."

"The NAO estimates that as much as £300 million could be saved each year if contracts were managed better."

"There is a risk that relationships between central government and its external suppliers are too cosy. It is a disturbing finding that, where services being supplied are sub-standard, nearly 40 per cent of departmental contract managers choose not to apply financial penalties to the supplier – even though they are entitled to do so."

"Central government organizations do not routinely check the value for money of their service contracts. As the pressures on public finances increase to ever higher levels, it cannot be countenanced that opportunities for saving money are being missed in this way."

"Where an outsourced service fails, the effect on citizens can be serious. I will want to see the lessons which emerge from the Office of Government Commerce’s review of two recent high-profile examples: the respective delays in the marking of SATS tests and in the payment of Educational Maintenance Allowances."

Mr Leigh was speaking as the Committee published its 17th Report of this Session which examined how well central government is managing service contracts and the effectiveness of the Office of Government Commerce in supporting central government to improve contract management.

In 2007–08, central government spent over £12 billion on service contracts, primarily in the areas of information and communication technology, facilities management and business process outsourcing, and an estimated £240 million on managing these contracts.

In most cases central government monitors the performance of its suppliers, but it makes limited use of financial incentives to encourage suppliers to improve performance. In addition, 38% of contract managers did not always apply financial penalties where suppliers under-performed. The extent to which central government tests the value for money of ongoing services and contract changes is variable. For example, 41% of contract managers had not tested the value for money of new services purchased under an existing contract.

Planning and governance is one of the weaker areas of contract management, although there are examples of good senior level engagement. Less than half the organisations surveyed, however, had an individual with overall responsibility for contract management, and there was no documented plan for managing 28% of contracts. In addition, many contracts do not have in place some or all of the elements of good practice risk management; for example, 56% of contracts did not have a contingency plan in case of supplier failure and 30% of contracts where suppliers were dealing with personal or security information did not have a risk register.

No commercial director/head of procurement rated the level of resources allocated to the management of their major contracts as ‘good’, and 22% of contract managers considered they did not have time to perform their responsibilities well. Most contract managers had undertaken relevant training, although 60% of organisations did not provide a structured training programme for their staff.

The Office of Government Commerce is to issue further guidance on contract management in April 2009, building on the good practice framework it published jointly with the National Audit Office, and it is working to improve the provision of training on contract management. It is also extending its monitoring of major suppliers to government, and is reviewing recent examples of service failure where contractors failed to perform—involving SATS tests and Educational Maintenance Allowances—to identify lessons for the future.