The government is wasting up to £290m a year on poorly managed service contracts, including contracts for IT.
The National Audit Office (NAO) published a report showing the public sector spent more than £12bn on service contracts in 2007/08, mostly on IT, facilities management and business process outsourcing.
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The NAO said that £290m "may well be a conservative figure" because it is based on estimates provided by the organisations being investigated.
The report pointed to a number of areas that could be improved. It said central government organisations do not allocate the right skills to managing contracts. They use inadequate key performance indicators to measure the performance of suppliers.
It also found that government organisations do not routinely test contracts for value for money, and good risk management practices are not being routinely applied to critical areas such as the handling of personal data.
In addition to saving money, the NAO said better contract management could improve services.
Despite the problems, the report also highlighted some good practice, such as the contract between the Department of Work and Pensions and BT providing telecommunications services. The NAO said there was good senior management engagement with the supplier.
Tim Burr, head of the National Audit Office, said, "Central government spends about £12bn each year on service contracts, many of which are critically important to the delivery of its objectives. There remains a need for more qualified people to manage these contracts."