Poor Management Of £40bn In Outsourced Contracts Exposes UK Govt To Fraud

Reuters/Darren Staples

Inadequate management of outsourced public contracts worth 40bn has left the government vulnerable to widespread fraud and overcharging, according to research conducted by official government auditors.

Five such contracts are currently under investigation by the Serious Fraud Office (SFO) or UK police officials, a National Audit Office (NAO) report recently revealed.

The NAO, an independent body that scrutinizes public spending for Britain’s Parliament, specifically examined the contract management policies of the Home Office and Ministry of Justice (MOJ).

It’s research revealed that while the UK government claims to recognize the dangers of outsourcing public services, serious changes in the “culture of the civil service” and its capacity to “procure and manage commercial contracts” are of the utmost importance. The NAO’s report, which has been backed by many MPs, was prompted by a scandal relating to G4S and Serco contracts that emerged last year.

In July 2013, a group of government ministers and senior officials announced substantial overcharging had occurred, particularly with respect to outsourced Ministry of Justice (MoJ) contracts with UK firms G4S and Serco. This over-billing, which related to electronic tagging services, had been ongoing since 2005. At the same time, the NAO and MoJ were approached by a whistleblower, who made separate allegations regarding G4S’ operational procedures.

These revelations sparked a series of contractual reviews across UK government departments. In the vast majority of contracts analyzed, weaknesses were apparent. Widespread management and administrative problems were uncovered, which spanned poor governance and inadequate record keeping.

The negative findings from these reviews sparked the NAO’s research into UK government contract management policies. Regarding the G4S and Serco electronic contracts, poor governance structures and a lack of “clearly defined roles and responsibilities” for managing contracts were key to overcharging, according to the NAO’s report.

Widespread complacency was also evident. While the MoJ detected billing issues in 2008, no substantive action was taken to remedy this situation, the NAO found. The MoJ’s staff simply “did not hold themselves or teams accountable for contract management,” the watchdog’s research revealed.

‘Too big to fail’

In an official statement, the Public Accounts Committee (PAC) chair Margaret Hodge said G4S and Serco’s substantial over-billing of the MOJ on public service contracts was “an urgent wake-up call for the government's disastrous contract management.”

Public Accounts Committee (PAC) chair, Margaret Hodge (Reuters/Kieran Doherty)

She emphasized that in an ever-increasing climate of financialization, more of Britain’s public services are outsourced and issued by private firms. “These companies must be held to the same high standards as any government department, so that the public can have confidence they are delivering the quality of service we are entitled to expect.”
But the official state response to overcharging by Serco and G4S has been muted, Hodge argues, because the British government is at the behest of powerful firms, which are perceived as being “too big to fail.”

While the PAC chair acknowledged the Cabinet Office and certain governmental departments have begun to make progress “in improving contract management,” she warns that “much more still needs to be done.”

“With so much taxpayers' money at stake, departments must urgently put an end to the 'out of sight, out of mind' mentality that has led them to be in this weakened position before even more taxpayers' money is wasted.”

‘Progress, but more needs to be done’

While the NAO’s report acknowledges UK government departments have taken the negative findings of recent reviews very seriously and subsequent reforms introduced are making progress, it emphasizes further policy shifts must be implemented if taxpayers’ interests are to be protected.

Of a sample of 60 central government contracts analyzed by the NAO, 34 were problematic. And of a sample of 73 contracts examined in terms of management practices, multiple aspects of many were found to be at “material risk” of overcharging. The watchdog’s research indicated government departments still tend to rely on data supplied by outsourcing firms, rather than conducting their own appraisals. It also uncovered certain government departments’ failure to appoint a person with the vital task of ensuring outsourcing firms are honoring contracts. 

Serco have thus far repaid £70.5 million, while G4S have doled out £108.9 million across all contracts referred to UK authorities. But following NAO forensic analysis, auditors warn problems relating to potential overcharging could be much more comprehensive than current investigations indicate.

According to the NAO, adequate government systems to manage outsourced contracts need to be established, and that accountability for the delivery of outsourced services rests with the companies paid to provide them.

In light of the watchdog’s findings, Britain’s Comptroller and Auditor General (C&AG), Sir Amyas Morse, said on Thursday that much remains to be done despite the limited progress that had been made with government reforms.

Reuters/Darren Staples

Morse, who also serves as chief of the NAO, added, “the acid test will be whether the resources and effort needed for sustained improvement are carried through into the future performance of the departments in procuring and managing contracts.”

The NAO reports to the Public Accounts Committee – a select committee of the House of Commons. Reports produced by the NAO are often reviewed by PAC, and in certain cases investigated further. Prompted by the NAO’s recent research, the first of two separate evidence hearings will be conducted by the PAC on Monday. These hearings will specifically investigate the MoJ and Home Office’s management of outsourced contracts.

Throughout the course of the hearings, the PAC’s chair Margaret Hodges will interview multiple senior officials to determine whether government departments have made any real progress in managing outsourced contracts. Among those due to be probed are elite Serco and G4S staff members, the MoJ’s Permanent Secretary, the MoJ’s Director General of Finance, the Home Office’s Permanent Secretary and the Home Office’s Chief Operating Officer.