A rigid approach to cost reduction and poor supply relationship management feature heavily in a parliamentary committee’s damning assessment of Government procurement policies in relation to the collapse of Carillion.
The cross-party Public Administration and Constitutional Affairs Committee has just published its inquiry into the implosion of Carillion in January this year, deeming the Government’s overriding preoccupation with cost reduction as “a matter of grave concern.”
The committee advocates a root-and-branch reappraisal of how the Government assesses the quality of the work it procures. As matters stand, the committee found that providers were incentivised to deliberately undercut bids in their efforts to appeal to the Government’s cost reduction priorities, while planning to renegotiate contracts at a later stage.
The Government’s continued use of the Private Finance Initiative (PFI) has also come under heavy fire by committee members. Nearly 30 years after PFI projects were first launched, the Treasury remains unable to furnish a shred of evidence to support its continuing claims that PFI is good value. The only reason it is continuing appears to be that “it takes debt off the balance sheet.”
The result has actually been that the Government has ended up paying more for projects under the PFI than it need have done and has no evidence of any additional benefit arising from this finance method.
The Committee has urged ministers to study the Scottish Government’s alternative, a non-profit distributing model, and asses what can be learnt from this.
The Committee agrees that the Government was right to allow Carillion to collapse, as ultimate responsibility for the company rested with its financers, management and shareholders. However, it was also stated that this was symptomatic of the Government’s prioritisation of cost reduction in its outsourcing activities which forces contractors to take “unacceptable levels of financial risk.”
The Committee’s Chair, Sir Bernard Jenkin, said, “The government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.”
Steve has over 28 years of success as CPO, MD and Procurement BPO leader in a range of industries. Steve is COO at Odesma, responsible for Odesma’s delivery capability & infrastructure.