The Public Accounts Committee has issued a report finding that the Government procurement process has incentivised a focus on tendering and winning bids, not ensuring that the right supplier is selected to deliver the £250 billion worth of commercial services it buys.
In construction and facilities management, the report says that the Government’s ability to ‘buy in bulk’ (it spends £100m annually) should create opportunities for better value through economies of scale.
Yet, the number of companies that have successfully bid for central Government contracts is a relatively small number of large well-known suppliers that have pursued growth through acquisitions and expansion into new sectors.
This strategy has led to a loss of focus on the companies’ core expertise, in favour of concentrating on winning contracts to maintain sufficient cashflow to offset balance sheet debt. Frequently, bids are won at minimal or zero profit margins, in the belief that the contracts they win can be varied later to increase profit.
Several large construction companies have reported significant financial problems this year and had to undertake large-scale debt reduction through public refinancing.
The report also highlights further concerns regarding contract specification, transparency, use of SMEs and the role of the Cabinet Office in creating poorly functioning markets and poor value for money.
Committee Chair, Meg Hillier MP said: “The Public Accounts Committee has long highlighted weaknesses in Government contracting and the lessons it must learn if it is to outsource effectively for the benefit of service users and taxpayers.
“The collapse of Carillion in January sharpened our focus on the relationship between Government and its Strategic Suppliers—companies that receive over £100m in annual revenue from Government contracts.
“In particular, we have identified a need for Government to be more assertive in shaping the markets in which it operates, with a renewed focus on driving value for taxpayers’ money.
“It must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs.
“There must be clearer specification of contracts, properly scoped, so that when any deal is signed there is an agreed understanding between Government and supplier of what is being paid for, and over what timescale.
“There are many areas in which the Cabinet Office can drive compliance across departments—not least turning its proposed ‘playbook’ of guidelines, rules and principles for contracting into a set of mandatory requirements.”