Following today’s Public Administration and Constitutional Affairs Committee hearing into the collapse of Carillion, Phil Bentley, Chief Executive of Mitie plc has expounded a clear reminder that not all outsourcers are the same, and that private sector contractors provide a valuable and important role in the provision of public sector services.
During the hearing, Phil Bentley highlighted six key lessons learned from the collapse of Carillion. Key recommendations he made to improve public sector outsourcing, generate better value for the taxpayer and promote innovation and the use of technology across the outsourcing sector, include a greater role for the Crown Commercial Service, a new Code of Conduct for the industry and the need to consider value, not just cost, in public sector procurement.
Set out below are the full set of observations and recommendations.
Further detail into the Government’s inquiry on outsourcing can be found here:
Analysis of lessons learned from the collapse of Carillion and Mitie’s recommendations
1. There is an important and valuable role for private sector outsourcing in the provision of public sector services
The private sector outsourcing industry plays a valuable role in the provision of public sector services, bringing many benefits including savings for Government departments, innovation and leading-edge technology, the transfer of risk, and critically, clear accountability to deliver improved performance.
Recommendation/ observation: The sector and the principle of outsourcing is not flawed, but there are tangible improvements that can be made to the way in which the public sector procures.
2. Not all outsourcers are the same
There is as much diversity in the outsourcing sector as there is in financial services. The collapse of Carillion, as has been widely documented, was principally as a result of failings within its construction business, coupled with excessive leverage and governance failures. Mitie, in contrast, is not overly leveraged, has a very broad client base with no reliance on one single customer, has a broad range of services and sources two thirds of its revenue from the private sector. All of this reduces risk.
Recommendation/ observation: Government need to fully understand the business model - and financial position - of its supply chain partners, and recognise that not all employ the same model, or rely on the same financial levers. In our view, this can be done at any point in time, but is further strengthened by a commitment to partnership and regular dialogue. We would further suggest that complex public contracts are awarded so as to permit comparability of performance delivery.
3. Data is critical; contract ‘equalisation’ is detrimental
There must be sufficient, accurate, timely data made available to government, and from government, to ensure that contracts are procured and awarded based on the most informed information as possible. The quality of data across government departments varies widely, as does ‘pre-market engagement’.
Recommendation/ observation: Contracts should be awarded on value, not just on cost. Data that supports the wider value on a contract (e.g.: value to community, jobs, innovation, technology, care and sustainability) need to be included in the way that contracts are assessed. Judgement is required to pick the best solution. ‘Equalising’ all bids, then choosing on price is easy – and wrong.
4. Beware the legal challenge
Whilst all public sector contracting needs to be held to account, the prevalence of ‘legal challenges’ by private sector under-bidders, presents, in our view, a significant obstacle to efficient public procurement, fuelling defensiveness and stifling innovation.
Recommendation/ observation: Right to challenge should be restricted, and should be based on evidence-backed, material challenges to either the process of award or the terms of the award. An independent arbitrator should by appointed to decide on whether a right of challenge should be awarded.
5. ‘Fairer’ contracting is welcome
Historically, unwarranted data, termination for convenience, onerous or disproportionate penalty clauses have left outsourcers nursing loss-making contracts.
Recommendation/ observation: We believe a growing collaborative approach to managing change, provision of accurate data and fairer termination notices, with appropriate compensation will rebuild confidence. We also believe this partnership approach will give government departments better solutions and greater value.
6. Build a Win/Win culture
Public sector procurement can end up as a box-ticking exercise that fails to give the tax payer and the end user the ’best’ solution. With awards made solely on the basis of the cheapest solution, and little strategic judgement, there is scant regard for creating a win/win solution for both government and contractor.
Recommendation/ observation: Cost should not be confused with value. We recommend greater oversight from the Crown Commercial Service to provide a ‘non-executive’ overview of Government contracting departments. There would need, for practical purposes, to be a materiality threshold forging enhanced levels of transparency and accountability on which decisions are actually made.
We believe that public procurement in the UK is relatively sophisticated. The fallout from Carillion has seen the FM industry absorb critical contracts with negligible impact on services, and with the vast majority of Carillion employees taken on by new contract providers. However, the failure of Carillion, and the sector’s structural challenges such as low margins, the pricing of risk and the long-term nature of the contracts that are procured, has aired an important and timely debate on outsourcing. We would support a Code of Conduct, drawn up and agreed with outsourcing partners, that promotes transparency, partnership, value and sustainability.
The deadline for the submission of written evidence for the inquiry was 12 FEBRUARY 2018. Following the oral hearing and the invitation to submit further evidence, these recommendations were submitted to the inquiry on 8 May 2018.
Notes to editors
For further information, please contact:
Tori Cowley, Group Director of Corporate Affairs and Investor Relations
T: +44 (0) 203 123 8705 M: +44 (0) 781 852 8110
Claire Lovegrove, Head of Media Relations
T: +44 (0)20 3123 8716 M: +44 (0)7900 276400
Founded in 1987, Mitie is the UK’s leading facilities management and professional services company. We offer a range of specialist services including Security, Engineering Services, Catering, Cleaning, Pest Control, Landscaping, Energy and Property Consultancy, Property Maintenance, and Custody Support Services.
Mitie employs 53,000 people across the country, looking after a large, diverse, blue-chip customer base, from banks and retailers, to hospitals, schools and government offices. We take care of our customers’ people and buildings, by delivering the basics brilliantly and by deploying advanced technology. We are pioneers in the Connected Workspace, using smart analytics to provide valuable insight and deliver efficiencies to create outstanding work environments for customers.