Both central and local government invest staggering amounts of money on contracts with private sector providers.
This figure has steadily risen over recent years and overtaken staffing costs as the biggest source of government spending. Given the scale of investment, it would be reasonable to expect procurement with the private sector be rigorously monitored, with robust data capture mechanisms creating a detailed understanding of where money is being spent, and with whom.
Given the resource constraints councils have been working under, the need to have meticulous oversight across spending is pressing. Better data on private sector procurement, including key performance evidence, will let councils make better-informed choices.
It is in this vein that our new report – From transactions to changemaking: rethinking partnerships between the public and private sectors – released today outlines the UK’s lack of capacity to fully understand and account for its procurement decisions.
Even basic information on how many contracts are extant and with which providers is not available. Such large sums of taxpayers’ money should not be going so poorly accounted for.
As a country we compare badly with many of our European peers who are further advanced in their data infrastructure and better equipped to give the necessary oversight on their procurement investment.
That government is unable to capture detailed information on procurement with the private sector is problematic for several reasons.
First, it stops good outcome evidence informing procurement decisions, for instance on whether using a specific provider is good value for money and has acceptable levels of return on investment.
Private finance initiatives (PFIs) are a case in point. Despite public bodies paying £10.3bn to private companies under PFIs in 2016-2017, there is only a limited understanding of whether this was good value for money. Government has no recognisable strategy for addressing this shortcoming, as highlighted by the public accounts committee in a report published this summer.
Second, poor corporate culture is more easily concealed when data governance is weak and the attendant infrastructure lacking. The collapse of Carillion exposed a dysfunctional corporate culture that drove perilous practices, leading to the firm’s downfall and mass service disruption.
The role of subsidiaries, and the transactions between them and the central provider firm, is a murkier area of practice in large public sector outsourcing contracts. It is thus vital to look at this area to give clarity and assurance on service supply chains, informing government and commissioning bodies where money flows after investment, and which companies are involved.
Third, without a rigorous overview of cost, quality and performance, the public are less able to constructively engage with service deliverers in their areas and scrutinise local politicians.
Public mistrust of the role of the private sector has been on the rise after recent, high-profile failures. To regain the public’s trust a much more open and transparent approach is needed.
So, what to do to improve on this situation? Our new report sets out measures that would help address deficiencies in data for procurement spending with the private sector.
These reforms require action across government, and the public and private sectors, to provide better information on their roles within public-private partnerships.
Private sector firms contracted by the public sector should adopt an accountability code of conduct. While this would be tailored to specific partnerships, certain core characteristics would apply universally.
For example, private sector firms should commit to open book accounting on large public sector contracts of £1m and over. Firms should also commit to making public the subsidiaries they will engage within a contract’s supply chain.
The public sector should also publish a business case for outsourced contracts. This would be a much needed basis against which performance can be evaluated, with outcomes specifically assessed against the objectives set out.
Further, the public sector should engage local communities meaningfully when it comes to partnerships between the public and private sectors. Such measures could engage the public through evaluative mechanisms like customer satisfaction surveys.
An overarching understanding of the picture is also needed. To this end, the report recommends that government begins a review to identify the steps needed for transparency on private contracts across cost, quality and performance.
Steps must also be taken to improve the data that is captured from the diverse forms of partnership between the public and private sectors.
While the measures set out above would be important moves towards better data provision, there is a deeper shift in culture that needs to occur that would result in government and the public and private sectors innovating to be more transparent and accountable.
Our report sets out how this shift in culture can be achieved.
Trinley Walker, senior policy researcher, New Local Government Network