The National Audit Office has called for government to negotiate greater access to, and make better use of, information about how much outsourced public services are actually costing suppliers and therefore how much profit they are making. An NAO survey found that such information, known as open-book accounting data, is currently available in only 31% of contracts and that, even then, it is not always received.
Based on public and private sector case studies, the NAO has identified five approaches to collecting and using information on suppliers:
ensuring price complies with the contract;
making better informed commercial decisions;
maintaining control of risk; and
achieving step-change innovation.
The NAO goes on to recommend that every major contract have a strategy for the collection and use of information and that every government department have a policy on when it will use open-book accounting. According to the NAO’s survey, currently only 23% of government organizations have a policy on when to use open-book accounting.
Today’s report recommends that the Cabinet Office set up a task force to establish a common standard for open-book data, since suppliers complain that government currently asks for data in a variety of different formats. It also recommends that the Cabinet Office develop better guidance for interpreting suppliers’ costs and profits.
Overall, the NAO wants government staff to be encouraged to understand in detail what is going on in those organizations that deliver public services.
“Contract management is not a desk job. We are reminded of this in all the best practice and the worst failures we see. For government to be accountable for contracted out public services; for it to understand its suppliers; for it to exercise oversight; and for it to promote value for money, it requires its contract managers to take a ‘hands-on’ approach and to go and see for themselves what their suppliers are doing.”
Amyas Morse, head of the National Audit Office
Notes for Editors
This report is about the information that government uses to manage its contracts. Supply-chain assurance is how a client gathers information to understand what is going on inside its suppliers. Open-book accounting is a particular type of supply-chain assurance where suppliers share information about the costs and profits of a specific contract with their client.
In our report, we make a distinction between the use of open book and the need for public transparency over profits.
The government can use open-book accounting to understand the specific costs and profits of its major contracts as an important tool in managing those contracts.
It is in the public interest to have public transparency over the general level of profitability that government suppliers are able to achieve. This can give some confidence, when combined with other information that the system of public procurement is working. Yet the profit of a specific contract may be commercially confidential, since knowing it would allow competitors to price future work.
Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.