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Thu September 20 2018

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Carillion failure prompts Cabinet Office procurement reform

25 Jun The government is planning to give more weight to social value when awarding public contracts and put less emphasis on price.

There is a lot of hostility around towards the business community these days
There is a lot of hostility around towards the business community these days

“We will extend the requirements of the Social Value Act in central government to ensure all major procurements explicitly evaluate social value where appropriate, rather than just ‘consider’ it,” Cabinet Office minister David Lidington said.

In the 1980s it was called contract compliance and the Thatcher government banned Labour local authorities from practising it. In 2018, however, in the wake of Carillion’s collapse, the Conservative government now sees a need for market intervention.

Mr Lidington told a gathering at the Reform think tank in central London: “If we are to build a fairer society, in which the public has greater trust in businesses not just to make a profit, but also to play a responsible role in society, then we must use the power of the public sector to lead the way.

“We will now develop proposals for government’s biggest suppliers to publish data and provide action plans for how they plan to address key social issues and disparities – such as ethnic minority representation, gender pay, and what they are doing to tackle the scourge of modern slavery.”

He said: “We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised.”

Extending the Social Value Act is among a package of measures designed to improve the public services marketplace – since Capita, Interserve, Serco, Mitie and other major names in the sector have all experienced considerable financial distress recently. The government is also planning to require key suppliers to develop ‘living wills’, allowing contingency plans to be put into place if needed.

The veil of contract confidentiality is also to be lifted a little: key performance indicators will be published.

There are to be new improved training programmes for government procurers, presumably to help them know how to apply value judgments without exposing themselves to interminable legal challenges.

“But government cannot do this alone,” Mr Lidington said. “We need the industry to come with us on this journey. We need them to put right failings where they have occurred; demonstrate their ability to respond to changing circumstances; and show their capacity for innovation and creativity as well.”

The catalyst for this movement towards social engineering is the collapse in January of Carillion, one of the biggest private sector suppliers of public services. It is not immediately apparent how any of this would have prevented Carillion winning public sector contracts, or prevented it collapsing as it did. But ministers feel the need to “rebuild trust” and to justify private sector delivery of public services in the face of a Labour opposition wooing younger voters with promises of a return to state-run delivery and nationalisation of the railways, the energy sector, the water industry and Royal Mail.

Mr Lidington said: “We believe in an economy that works for everyone – what you might call a ‘responsible capitalism’ – where true fairness means everyone playing by the same rules as each other, and where businesses recognise the duties and obligations they have to wider society. By doing so, we will go some way to restoring trust between government, industry and the public – and build public services that have the confidence of the people they are there to serve.”

It seems business is ready to cooperate, since most of the minister's proposals were supplied by Serco chief executive Rupert Soames, who produced a cogent post-Carillion diagnosis and prescription back in February. You can (and should) take time to read it in full here, if you haven't already. It's quite lengthy, mind.

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