Posted on July 17, 2018 by Amyas Morse
Hundreds of major change programmes, increasing demands on and expectations of public services, productivity challenges – and the massive task of leaving the EU. In the face of such demands on skills and capacity, Sir Amyas Morse, Comptroller & Auditor General, spoke recently to the Whitehall and Industry Group (WIG) about why the public sector needs private and third sector skills, experience and capacity more than ever. The NAO Blog summarises Sir Amyas’s talk about some of the current key priorities and what is needed to make the relationship mutually successful and in the best interests of people and public services.
Government has an immensely tough job to deliver its objectives successfully while implementing the exit from the EU at a time of major transformation of public services, devolution and ongoing financial pressure [see our posts: A flexible, engaged approach to efficient public services and Successful transformation: voices of experience]. Civil servants are working extremely hard and showing great dedication to implement effectively what is likely to be the most significant change of their public sector careers. I want to assist them through the questions I ask, the independent facts that the NAO provides, and our cross-government insight into what is doable.
As the EU Exit gets closer, prioritisation and a joined up approach across government becomes ever more important. Equally crucial, is for public, private and third sectors to work together well, exchanging ideas, skills and knowledge. The UK would need this even without the EU Exit and all the associated contingency planning, because of the need to tackle the UK’s productivity challenges and to deliver the public services that people expect in the face of growing demand and higher expectations.
Government’s need for external support creates great opportunities for providers. But to meet it, they need to understand the political demands on their public sector commissioners, the complexity of government and the long-term, strategic problems and uncertainties that the public sector grapples with all the time.
Three key issues underpin the current public – private sector relationship.
Government must be ruthless in its focus and realistic in its ambition and use of resources
Government is asking the public sector to change the way that things are delivered, to achieve immediate cost savings and to implement programmes that are often too optimistic and not really viable [to help, we have recently published a Survival guide to challenging costs in major projects]. There will undoubtedly be ugly scrambling for resources, as even before the EU Exit decision the government’s overloaded programme of change placed strain on affordability, management and scarce technical skills.
I have spoken and blogged previously on the EU exit: tough decisions and prioritisation needed. The government does now recognise, particularly at the level of individual departments, that it can’t continue doing everything previously planned as well as managing the EU Exit. Central coordination is also improving. However, there is still more to be done to identify and focus on the absolute essentials across government – to prioritise programmes and skill and resource allocation, especially in areas where the public sector is competing for skills and capacity with the private sector.
And in undertaking this hard-headed prioritisation, government needs to understand the resources available to it – in-house and externally – and plan around its skills gaps both now and in the future. It is currently short of the capability and capacity to plan and manage the large number of major change programmes. As we go forward, it must expect gaps in the skills needed to implement complex and technical programmes. Some sectors also face a potential loss of EU workers.
Government’s ambition needs to be based on realistic assessment of its ability to put in place the essential enablers, from new IT systems to Parliament’s logistical capacity to pass new legislation given the estimated nine bills and up to 1,000 pieces of secondary legislation needed by March 2019 to leave the EU.
Moreover, government needs to ensure that funding and spending commitments are viable – which is challenging enough in terms of liabilities and commitments falling within the potential scope of the EU financial settlement [see our report Exiting the EU: The financial settlement], let alone wider spending.
Major and rapid change and complex contracts demand more careful risk management
Government is facing new risks and complexities, on top of the ‘normal’ risks around delivering services, such as the volume of demand, and ensuring that public services are delivered to even the most difficult and vulnerable consumers. Moreover, the risks of unintended consequences escalate in an environment of widespread change and when decisions are made at pace.
Government must take a view about where – again, as a whole – it is willing to accept risk, and where it needs to act quickly and decisively to lessen it. As it simply cannot avoid taking on a lot of risk through complex programmes, especially the EU Exit process, it is important that sufficient contingency budgets are available.
There are also decisions to be taken about the costs and consequences of transferring risks to third-party providers. Contractors are not unintelligent people who are easily out-witted into signing contracts that are in the government’s favour! They do, however, sometimes focus on winning contracts with insufficient regard to whether it is completely viable to deliver all the aims. Sometimes contracts are agreed with insufficient understanding of the risks. Sometimes the risks are known, but ignored. Sometimes risks are transferred that cannot be reasonably managed by the supplier. Sometimes risks that matter most, such as customer service, are not appropriately incentivised or managed. And sometimes contractors pass the risk back or demand a bail out when they can’t deliver.
We have reported on many contracts in each of these situations. For example, in Transforming Rehabilitation suppliers were expected to carry both the volume-risk of offenders passing through the system and the performance risk of reducing re-offending, which they failed to do. But you can’t expect a private sector organisation to take such risks. Consequently, the contract was renegotiated at an additional cost of £340 million to the public purse. And in the case of Concentrix, HMRC’s use of payment by results incentives led to poor, and sometimes inappropriate, customer service. The contract was renegotiated and HMRC concluded that this service may have been better delivered in-house.
Mutual understanding is needed between government and suppliers
Government and suppliers need to talk to each other more and understand their profound differences, as well as their shared interests. There are a lot of potentially competing agendas to be reconciled. Ministers want to be seen to be doing something substantial in response to issues. Project leads want their projects to be delivered on time and don’t want their resources being diverted to other programmes. Contractors want to win work.
Suppliers often don’t understand the political dimension that is so significant for government. They can be too focused on the specific legal liabilities of a contract and may not take sufficient account of reputational damage, which can be much worse when public services are involved than in a conflict with another private sector counter-party.
On the government’s part, the collapse of Carillion illustrates that it still has a way to go in appreciating the commercial pressures on its industry partners. Overall, the Carillion case actually indicates government’s management of suppliers is improving [see Investigation into the government’s handling of the collapse of Carillion]. But there was a lot of publicly-available information about Carillion’s balance sheet risks (nothing to do with its work with the UK government) about which government should have been aware. It needs to assess the financial health and sustainability of its major suppliers and use this information to protect the public interest.
In short, the public sector needs to do more to understand operations, incentives and consequences across supply chains; to improve its due diligence and avoid creating relationships with financially-weak suppliers; and to play its own role in delivery.
I expect private and third sector provision is going to be a large part of delivering public services in future because the government just doesn’t have either the skill or the financial capacity to take back much delivery in-house. But for this provision to be successful, government needs to be realistic, work within the available resources, manage risks and understand its suppliers.
We invite you to comment on this post or to Contact us to discuss any of the issues raised. Further blog posts on contracting can be found on our contract insights series.
About the author: Amyas Morse, Comptroller and Auditor General. Amyas has been head of the NAO since 2009, before which he was a global partner with PricewaterhouseCoopers and Commercial Director at the Ministry of Defence. He has served on a range of cross-government Boards and Groups.
Tagged: Amyas Morse Brexit Contract management Cross-government Digital transformation Financial sustainability Major projects Private sector Productivity Project management Public finances Risk management Skills
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