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Carillion collapse: Contractors take ‘too much’ outsourcing risk, MPs warn

9 July 2018 | By Neil Gerrard

The government forces contractors to take on unacceptable levels of financial risk while spending as little money as possible itself, a committee of MPs has found.

Carillion collapse: MPs say contractors take ‘too much’ outsourcing risk
The government forces contractors to take on unacceptable levels of financial risk while spending as little money as possible itself, a committee of MPs has found.
The Public Administration and Constitutional Affairs Committee said the government had a "damaging" approach to outsourcing, made worse by the fact that the information government uses to inform the process can be "either incomplete or simply incorrect".
The committee said the government had to be aware of the problem as it has written contracts that force contractors to pay out when it gets its own data wrong and has been known to forgo performance penalties in the initial phases of contracts.
It also found that the government has had to renegotiate over £120m of contracts since the start of 2016 to ensure public services would continue.
And the committee claimed the government was unable to provide significant evidence for the basic assertion behind outsourcing that it provides better services for less money or a rationale for why or how it decides to outsource a service.
And it added: "This was especially true for PFI. Shockingly, the government admitted to the Committee that the 'entire [PFI] structure is to keep the debt of the balance sheet'."
Chair of PACAC, Sir Bernard Jenkin said: "It is staggering that the government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.
"Public trust requires that outsourcing better reflects public service values. The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market."The government forces contractors to take on unacceptable levels of financial risk while spending as little money as possible itself, a committee of MPs has found.

The Public Administration and Constitutional Affairs Committee said in a newly published report that the government had a "damaging" approach to outsourcing, made worse by the fact that the information government uses to inform the process can be "either incomplete or simply incorrect".

The committee said the government had to be aware of the problem as it has written contracts that force contractors to pay out when it gets its own data wrong and has been known to forgo performance penalties in the initial phases of contracts.

It also found that the government has had to renegotiate over £120m of contracts since the start of 2016 to ensure public services would continue.

And the committee claimed the government was unable to provide significant evidence for the basic assertion behind outsourcing that it provides better services for less money or a rationale for why or how it decides to outsource a service.
And it added: "This was especially true for PFI. Shockingly, the government admitted to the Committee that the 'entire [PFI] structure is to keep the debt of the balance sheet'."

Chair of PACAC, Sir Bernard Jenkin said: "It is staggering that the government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.

"Public trust requires that outsourcing better reflects public service values. The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market."

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