Posted on November 16, 2016 by Emma Willson
Many critical government activities rely on contracts. Following a review of our past work, and discussions across government, we’ve brought together our insights into what works well and less well across government commercial and contracting. We’ve identified case studies based on our past reports and what this means for emerging best practice. This post highlights our findings and explains the challenge for government to meet these higher standards.
The public sector now spends more on contracts with the private and voluntary sectors (£235 billion) than it spends in providing services itself (£194 billion). This includes contracts for critical aspects of public service delivery such as the running of rail services, rehabilitation of offenders and training military pilots.
Through our work we have assessed a large number of risky and imperfect contracts, publishing well over 100 reports since 2000 on commercial and contractual issues. This work gives us a unique opportunity to draw out common themes and identify opportunities for learning – captured in our new interactive product, Commercial and contract management – insights and emerging best practice.
Some recent NAO reports
E-Borders and successor programmes: The Home Office contracted a supplier to put in place its electronic border management programme.
Army 2020: In reducing the size of the Army and increasing Army reserve numbers, the Ministry of Defence worked with a contracted recruitment partner.
The Work Programme: The Department for Work & Pensions pays prime contractors to provide its scheme to help long-term unemployed people find and keep jobs.
Transforming rehabilitation: The Ministry of Justice contracts private sector suppliers to supervise some offenders.
Shared Service Centres: The Cabinet Office led a programme to move the government’s back office services to independent shared service centres run by the private sector.
Upgrading Emergency Services Communications: The government let new contracts to upgrade the radio system used by the police, fire and ambulance services.
Nuclear Power in the UK: This examined the measures government is taking, including specially designed contracts, to support the market for investment into new power generation.
Procuring new trains: The Department for Transport signed contracts for two large procurements of rolling stock – for Thameslink and Intercity Express.
Over recent years there has been an undoubted improvement in government’s commercial and contract management, with departments displaying a real appetite for learning. There have been new standards for departments, improvements in commercial capabilities and areas of good practice continue to evolve and develop.
Commercial and contract management is, however, still far from perfect. Through our insights we want to challenge government to establish and meet this higher standard, but also to go further to ensure all contracts achieve the desired outcomes and set itself even higher standards.
Our insights and emerging good practice
Commercial and contact management: insights and emerging best practice identifies 20 areas of insight we feel government needs to think about going forward – this does not stipulate a set of rules or provide a tick-box for everything that needs to be considered.
Some of the problems we highlight are not new, but persistent problems. NAO blogs-posts have previously talked about the need for government to think innovatively about how to broaden the market to Small and Medium Enterprises (SMEs to VCSEs: barriers to benefits) and how to understand the costs of what it is buying (Contracting: A minimal open book approach).
Other insights in Commercial and contact management draw on new thinking, such as the need to consider client leadership and approaches to keeping contract performance measures up to date.
What all our insights do is provide illustrations of what might happen when you get things right (or not so right!) and allow us to start thinking and sharing what good practice may look like. This is essential for government to continue its journey in improving commercial and contract management.
Manage your own obligations – an example of our insights
We often see the government not fulfilling its own contractual obligations. Not delivering those obligations can have many negative implications, as we have seen across a range of reports.
Extra costs and delay: The Home Office’s E-borders supplier carried out initial design before designers were fully aware of the department’s detailed requirements. Disputes arose because the supplier did not believe the department had rights to change requirements, resulting in programme delays.
Inability to understand and challenge supplier performance: Our report on military flying training found the that Ministry of Defence had difficulty holding the supplier to account for its performance partly because it was required to provide military training experts itself and had issues with its own performance.
Failing to transfer risk as planned: Our report on PFI hospitals found that hospital trusts had difficulty meeting their obligations to allow suppliers to manage the maintenance risk because they did not always allow scheduled maintenance. As a result, trusts found themselves accepting the maintenance risk, despite having paid for the risk to be transferred.
Failing to achieve benefits: For planned benefits from the new emergency services network contract to be realised, major business change by the emergency services is needed. Supporting the achievement of these benefits is not part of the programme’s scope and it was not clear who should take responsibility for changing behaviour.
We are not the only ones thinking about what the ‘new’ and revised commercial expectations for government may look like. The Government’s Commercial Function recently published a set of standards for departments and external organisations and we are encouraged to see our insights both complement and elaborate on these standards.
Looking to the future, there are many opportunities for the government to continue its journey, but it will be a challenge. Government needs to go beyond existing guidance to identify what works. We would love to hear your comments and we invite you to contact us if you would like to discuss contracting and commercial matters further.
How to use ‘Commercial and Contract management’
Our insights and emerging best practice does not provide an exhaustive checklist of all the areas to consider or guidance for managing contracts and commercial relationships. Instead, it provides a set of messages and tips that we have picked up from our work and want to share more broadly so as to continue to improve commercial and contract management.
Who should use this?
It is aimed at those responsible for contracts across the public sector, both in the commercial function and more broadly.
How can it be navigated?
It is split into twenty insights, grouped in line with our contract relationships framework, which looks at contracts over their whole life-cycle from developing a strategy to termination and transition to new arrangements. The interactive format allows you to jump to sections of interest.
What does each insight contain?
For each insight, we set out:
Highlights some common problems and risks, drawing from our past reports and wider discussions.
Identifies some sensible approaches and initiatives that we have seen or have been told about.
Sections from our contract relationship audit framework, which outlines some of the things to look for, and links to other relevant guidance from government or elsewhere.
Examples based on our past work and knowledge, with links to the relevant reports.
Related blog posts
Our previous overview of government contracting, which considers contracts more widely: Joining the dots: the picture from government contracting
Contracting: A minimal open book approach, which looks at how to apply open book accounting principles to improve understanding of the costs of providing a service
SMEs to VCSEs: barriers to benefits, which looks at the government’s outsourcing to Small and Medium Enterprises (SMEs)
The challenges of major projects, which looks at lessons we’ve identified from our review of a large number of major projects
About the authors:
Emma Willson is an Audit Manager working in the Commercial and Contracting Community of Practice. The practice generates cross-government insight on commercial and contracting matters, develops best practice approaches and ensures these are applied across the NAO. Emma previously managed work and pensions related studies. Topics of past reports include contracted-out health and disability assessments, learning lessons from welfare reform and Personal Independence Payment.
Iain Forrester is an Audit Principal who works in the Cabinet Office and cross-government value for money team and is part of the NAO’s Commercial and Contracting Community of Practice. Topics of past reports he has worked on include BBC radio, rural broadband and grants across government.
Tagged: Contract insights series Contract management Cross-government Good practice principles Performance management Process management Project management Public sector markets Risk management Shared services Skills
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