Whitehall to auto-extend outsourcing deals using Brexit as excuse?

By Tony Collins

Type of government procurement spend 2014-2015. ICT is the top item.
Source: National Audit Office

Under a headline “UK outsourcing deals extended because of Brexit workload”, the Financial Times has reported that “hundreds of government contracts with the private sector that were due to expire are to be automatically extended because civil servants are too busy with Brexit to focus on new and better-value tenders”.

The FT says the decision to roll over the contracts could prove expensive for taxpayers because it limits competition and undermines government efforts to improve procurement.

A “procurement adviser to the government” whom the FT doesn’t name, said more than 250 contracts were either close to expiring or had already expired in 2016-17. The adviser told the FT,

“Brexit has pushed them down the list of priorities so there are lots of extensions and re-extensions of existing deals.”

The adviser added that this was the only way civil servants could prioritise the huge increase in Brexit-related work since the referendum.

Extensions

The FT provides no evidence of automatic contract extensions or the claim that deals will be extended because of the civil service’s Brexit workload.

There is evidence, however, that Whitehall officials tend to extend contracts beyond their original expiry date.

In a report published this year on the Cabinet Office’s Crown Commercial Service, the National Audit Office identified 22 framework contracts that were due to expire in 2016-17. Half of them (eleven) were extended beyond their original expiry date.

[The Crown Commercial Service was set up in 2014 to improve state procurement.]

The NAO also found that Whitehall departments – and the Crown Commercial Service – have been awarding contracts using expired framework deals, even though this contravenes public contracting regulations.

In 2015-16, 21 of the 39 frameworks that were due to expire were extended without competition or market testing, according to the NAO.

One example of an extended contract is a deal between Capita and the Department for Work and Pensions which started in 2010. Capita provides eligibility assessments for the personal independent payment allowance, which supports for people with long-term ill health or disability.

The five-year deal was extended by two years until July 2019.

Capita has also won a three-year extension to a contract with the Pensions Regulator and the BBC has extended a deal with Capita that was signed originally in 2002 to June 2022 – a total of at least 20 years.

Open competition?

The NAO has found that extending ICT contracts may not always be good for taxpayers. In the later years of their government contracts, suppliers tend to make higher margins (though not always).

There are also suggestions that civil servants will sometimes sign contract extensions when the performance of the supplier does not meet expected standards.

On ICT, the Cabinet Office asks central departments to complete a return every six months for each business process outsourcing and facilities management contract above £20m with strategic suppliers.

The survey asks whether the contract is being delivered on time, to scope, to budget, to the appropriate standards, and whether there have been any disputes.

In one study of government contracts with ICT suppliers, the NAO found that, of 259 returns from departments, 42 highlighted problems that included,

• failure to achieve milestones
• dissatisfaction with quality of outputs
• errors and other issues with delivery
• poor customer engagement and end user dissatisfaction and
• failure to meet key performance indicators.

Comment

For taxpayers there is some good news.

A break-up of “Aspire”, the biggest IT outsourcing long-term deal of all, between HMRC and Capgemini (and to a lesser extent Fujitsu) – worth about £9bn – is going ahead this June. An HMRC spokesman says,

“HMRC is on track to complete the phased exit from Aspire, as planned, by June 2017.”

And according to Government Computing, Defra’s IT outsourcing contracts with IBM and Capgemini under a £1.6bn contract called “Unity” are due to expire in 2018 and there are no signs the deals will be extended.

But the Department for Work and Pensions’ huge IT outsourcing contracts with the same major suppliers are renewed routinely and not always with open competition. The DWP says on its website,

“DWP contracts are awarded by competition between potential suppliers, unless there are compelling reasons why competition cannot be used.”

The DWP doesn’t define “compelling”. Nor is it clear whether its auditors look at whether the DWP has put up a compelling case for not putting a large IT contract out to open competition.

In 2014 the Public Accounts Committee, after investigating major suppliers to government, concluded,

“Government is clearly failing to manage performance across the board, and to achieve the best for citizens out of the contracts into which they have entered.

“Government needs a far more professional and skilled approach to managing contracts and contractors, and contractors need to demonstrate the high standards of ethics expected in the conduct of public business, and be more transparent about their performance and costs”.

Breaking up is hard to do

The break up of the huge Aspire IT outsourcing contract at HMRC is an exception, not the rule. The NAO has found that civil servants regard their major incumbent suppliers as safe and less risky than hiring a smaller company (that’s not steeped in Whitehall’s culture).

The NAO has also found that in some cases officials don’t know whether their suppliers are performing well or not. On many ICT contracts there is “open book” accounting, but not all departments have the staff or expertise to check regularly on whether their suppliers’ profits are excessive.

If Whitehall, with exceptions, is continuing to roll over contracts whether it’s legal to do so or not, what incentive exists to stick to the rules?

Brexit?

The FT story suggests Brexit is the reason hundreds of contracts are to be extended automatically. There’s probably truth in the automatic extension of some contracts – but it’s unlikely to be because of Brexit.

It’s unlikely that the civil servants involved in Brexit will be the same ones who are handling ICT contract extensions. That said, Brexit will inevitably put a higher workload on lawyers working for government.

If contracts are being extended automatically, it’s probably because that’s the way it has always been, at least within living memory.

While Sir Humphrey and his senior officials remain only nominally accountable to Parliament for how they spend taxpayers’ money, the easiest option of renewing or extending existing contracts will usually be seen as the best option.

It can be justified with “compelling” arguments such as a need to make an urgent decision in difficult circumstances, or the absence of alternative suppliers who have the necessary skills or the financial strength to accept the risks of failure.

Will anything change?

Until departments have to publish contemporaneously their intentions to award contracts without open competition or there is effective accountability within the civil service for major decisions, little is likely to change.

It hasn’t happened yet and there’s no reason to believe it will.  Many politicians including prime ministers have tried to reform the civil service and they haven’t ruffled a single carpet in the corridors of Whitehall.

As Antony Jay, co-writer of Yes Minister,  said in January 2013,

“The central anomaly is that civil servants have years of experience, jobs for life, and a budget of hundreds of billions of pounds, while ministers have, usually, little or no experience of the job and could be kicked out tomorrow.

” After researching and writing 44 episodes and a play, I find government much easier to understand by looking at ministers as public relations consultants to the real government – which is, of course, the Civil Service.”

In short, Brexit is likely to be officialdom’s up-to-date excuse for carrying on much as before.

Thank you to @TimMorton2 for alerting me to the FT article.