Government behaving badly on outsourcing contracts, says Serco boss
Rupert Soames told MPs the Government is partly to blame for woes in the outsourcing sector that led to Carillion’s collapse.
The boss of outsourcing giant Serco has accused the Government of “behaving badly” by passing off unreasonable contracts to suppliers, ignoring its own guidelines and shrouding its decisions in secrecy.
In a Commons hearing on lessons learned from the collapse of Carillion, chief executive Rupert Soames told MPs that a raft of “well run and well respected” outsourcers have lost vast amounts of money in recent years working on government contracts with “unmanageable amounts of risks”.
Mr Soames – a grandson of Sir Winston Churchill – claimed the Government has previously tried to pass off controversial and “unreasonable” contracts to outsourcing firms, while also routinely expecting suppliers to shoulder the risk of major law and policy changes.
He said: “It’s not unknown for Government to behave quite badly.
“It’s a monopoly buyer, it’s also the regulator, the referee and the giver out of business.”
He said the recent woes in the outsourcing sector, which led to the collapse of Carillion and forced a number of its rivals to raise emergency capital to bolster their finances, was “astonishing”.
“It’s been a massive, massive disruption in the supplier sector, the likes of which I’ve never seen – £8 billion written off of the supplier sector and billions of pounds being raised to recapitalise.”
He added: “A lot of this is management’s fault, but … the Government as a monopoly buyer cannot stand idly by and say ‘nothing to do with me, Gov’.”
“There’s a very good PIN (prior information notice) saying how departments should behave and what’s reasonable to ask firms to do and it is widely ignored among departments,” he said.
The Government process for deciding when to outsource and its decisions on contract bids are also “shrouded in opaqueness”, but should be transparent and audited by the National Audit Office, he added.
Mitie chief executive Phil Bentley, who was also giving evidence in the hearing, told MPs on the Public Administration and Constitutional Affairs Committee that he believed inaccurate data was also to blame for some failed outsourced contracts and called for greater data sharing and transparency.
He gave the example of the asylum seeker contract handled by Serco, which he said saw the numbers of asylum seekers “massively underestimated” and led to hefty losses on the work.
Both bosses also said the bidding process was also flawed, with the Government under pressure to choose the cheapest supplier, rather than focusing on quality and expertise.
Mr Soames added there are “no benefits for good behaviour, and no penalties for bad behaviour” in the process.
“In the commercial sector, you get a feeling people like their suppliers to behave well,” he said.
The company chiefs said the Government had tried to pass on the extra cost of the national living wage on some contracts, while also expecting suppliers to take the hit from any future policy changes from Brexit law changes.
“I call that bad behaviour,” said Mr Soames.
Mr Soames has already publicly called for “living wills” and a new code of conduct as part of an overhaul of the public sector contracting market following Carillion’s collapse.
He has drawn-up a four-point plan where outsourcers handling sensitive government contracts should sign “living wills” setting out what will happen with projects in the event of the firm going bust, as well as suggesting greater transparency on project progress, with updates every six months to ensure they are held accountable.
He also believes contracts should have pre-agreed “break fees” for both suppliers and the Government to allow either to pull out if a project is not working.