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Fri December 04 2020

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Watchdog warns on contractors' excess profits

12 Nov 13 Private contractors delivering public services for the government could be milking in exorbitant profits at the expense of the taxpayer, the country’s public spending watchdog believes.

That’s one of the conclusions of a pair of reports out today from the National Audit Office (NAO).

The government spends £40bn a year on private sector service providers but the NAO says that “there is currently a lack of transparency over the role that contractors play, the business that they do, the rewards that they make and the way that they perform”.

In the memoranda Managing government suppliers and The role of major contractors in the delivery of public services the NAO sets out some of the benefits that can be achieved through contracting but highlights three issues that need greater public scrutiny.

First, it raises questions about the way public service markets operate. This includes the need for scrutiny over whether public service contracts are sufficiently competitive and whether the rise of a few major contractors is in the public interest.

Secondly, it highlights the issue of whether contractors’ profits reflect a fair return. Understanding contractors’ profits is important to ensure that their interests are aligned properly with that of the taxpayer, it says. But transparency over rewards that contractors make is at present limited, the NAO found.

Thirdly, the performance of contractors needs to be better policed, with fines for underperformance and exclusion for misdeeds.

NAO chief Amyas Morse said: “Contracting with private sector providers is a fast-growing and important part of delivering public services.  But there is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly, and of departments themselves not being on top of things. While some government departments have been admirably quick off the mark and transparent in investigating problems, there is a clear need to reset the ground rules for both contractors and their departmental customers.”

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The NAO was asked to produce these reports by House of Commons Public Accounts Committee chair Margaret Hodge MP in the wake of a series of contract failures, including G4S and the Olympic security, Capita’s court translation services, Atos and work capability assessments, and Serco with out-of-hours GP services.

In response to the NAO’s reports today, Ms Hodge said: “These reports together raise some big concerns:  the quasi-monopolies that have sprung up in some parts of the public sector; the lack of transparency over profits, performance and tax paid; the inhibiting of whistleblowers; the length of contracts that taxpayers are being tied into, and the number of contracts that are not subject to proper competition.

“The recent fraud allegations surrounding the Ministry of Justice’s electronic tagging contracts with G4S and Serco are also a reminder of how important it is that government properly scrutinises and monitors its contracts with private providers.

“It is the government’s policy to outsource delivery of public services, but what it cannot do is outsource responsibility. Departments have a duty to ensure that the taxpayer is not being ripped off and that people, not profit, remain at the heart of our public services.”

CBI director-general John Cridland said that it was partly the government’s fault if private companies were ripping it off. He said: “The private sector already plays a big part in our everyday lives, from maintaining our roads, to collecting our bins and managing our social housing. At a time when we need businesses to step up and do even more, it’s critical to build public confidence and a vibrant competitive market place.

“The NAO identifies problems on both sides which need to be put right. When businesses are working on behalf of the taxpayer the highest standards are expected of them. The public has a right to know how its money is being spent and businesses must be transparent and accountable.

“The government needs to raise its game to be an intelligent customer. It needs to get better at managing procurement, contract performance and supplier relationships. And when things go wrong it must work with suppliers to tackle the problem head on.”

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