What’s the solution to the UK government's problems with procurement and contract management? The UK Business Services Association has recently published a report by our NSW Premier's ANZSOG Chair in Public Service Delivery Prof Gary Sturgess, which looks at why and how this has happened and what might be done to turn around the decline in trust between public and private sectors.
Given the amount of external provision in the UK, it is important for government to do contracting well. In 2014-15, UK government spent £242 billion – almost one-third of total government expenditure – on external suppliers, compared with £194 billion on staff. Around £100 billion is spent on the procurement of services by external providers.
But over the past five or six years, problems have emerged in the UK public service economy, particularly in the commissioning of complex services. A number of high-profile contracts have been cancelled and companies are on notice because of under-performance. Some major contracts are known to be losing money.
There has been a noticeable decline of trust on both sides – questions have been raised about the competence and the integrity of major providers. On the other hand, providers have repeatedly pleaded with government not to employ aggressive price-based tenders for complex public services, which provoke a ‘race to the bottom’ that compromises quality of service, workers’ terms and conditions, corporate profits and, potentially, the political and commercial sustainability of the market.
Prof Sturgess’ report was commissioned by the Business Services Association to explore these problems, why they have emerged, and what is necessary to ensure that the market for public services is politically and commercially viable.
He argues that for the market for complex services to be sustainable, questions of trust need to be addressed, and more appropriate contractual models must be employed (because not everything is ‘paperclips’!) His report outlines several things that government and industry can do to help redress the situation.
Government must formally acknowledge at the highest level that the procurement and contract management tools appropriate for buying ‘paperclips’ – highly commoditised, easily specified goods and services – are not appropriate for commissioning complex support services and front-line human services.
Some markets have developed to the point where they are capable of commoditisation. Policymakers must distinguish between these and markets where complexity, or uncertainty about the services in question, or a general lack of understanding or expertise on the supply side mean there needs to be a less transactional approach.
If the market for complex public services is to survive and mature, it is essential that government work with industry to rebuild personal, organisational and institutional trust.
With this in mind, government should consider a separation of its responsibilities as market steward from its role as customer.
To begin the process of trust-building, government and industry leaders might be brought together to concentrate on resetting market conditions in just one or two sectors. These would serve as small-scale experiments for exploring different ways of resolving the problems, and by focusing on only one or two sectors at once, senior executives on both sides could be involved. If such a process were to succeed, it will require careful design and management.
Consideration should be given to reinvigorating the discipline of commissioning within central government. Done well, commissioning can be a powerful instrument in challenging the optimism bias and systemic self-deception which often characterises complex projects and procurements. This is not to say that there will always need to be a separate commissioning agency, but it is fundamental that there is a distinct function (and hopefully, a recognised discipline).
Consideration should also be given to the establishment of a centre of excellence for the study of applied public service contracting, and the design and operation of public service markets. This would work best if it was funded jointly by government and industry, and there was a clear commitment to the centre’s independence and longevity. The objective should be to undertake detailed research into real-world markets, contracts and procurements, extracting the lessons without laying blame. For such an institution to work, it would need to enjoy the absolute trust of both government and industry.
There are limits to what the industry can do to contribute to this process. This is government’s supply chain, and government must decide the rules and the conventions that will govern these markets: if departments and agencies engage in aggressive gaming, they should not be surprised if providers do likewise. And because of laws which preclude collaboration among firms in bidding for contracts, there are constraints on the extent to which industry can respond collectively.
But structured conversations can take place amongst commercial rivals without infringing the bounds of law or propriety – using data clubs to share information about performance; engaging through anonymous and independent structures and processes, to construct a disinterested and balanced account of market conditions; developing a framework by which providers can conduct their own due diligence assessment of potential customers. This is about building a shared understanding of the market, how it works, the different ways in which companies might respond, and the likely consequences of different responses.
Industry must find new ways of telling its story. Ministers and public servants will not defend contracts that have become controversial, no matter how well they have performed in the past. Industry must develop the narratives that will assist the politicians, the public servants and the public to appreciate their contribution.
In particular, there is a need to explain: the important contribution of the services sector in the UK economy, and particularly the public services sector; the role that profit plays in the economy, particularly in stimulating innovation; the important functions performed by those involved in the day-to-day delivery of services; and the part that good management can play in better public services.
The difficulties that have surfaced in the UK public service market in the past five or six years are not new. They are certainly more acute than in previous decades, but the underlying issues are much the same. What has been different in recent years is the broader economic and financial climate, and the particular ways in which government has chosen to respond. Understanding this should make it easier for government and industry to appreciate the underlying causes of these problems, and to develop solutions that will be effective in the short-term and sustainable over time.
At the same time, knowing that these issues have been encountered (and dealt with) before provides ground for optimism that fundamental policy and market settings can be recalibrated to ensure that the public service market is politically and commercially sustainable over the medium- to long-term.
Prof Sturgess' report was the subject of a question in the UK House of Lords, which asked Her Majesty's Government for its response to the report. Lord Young responded that "...the Government Chief Commercial Officer must work with Departments to address the five points made in Dr Sturgess’s report: sustainability, relationships, contracting process, capability and allocation of risks".
The full report can be found on the Business Serivces Association website.