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The latest guidelines for government outsourcing attempt to balance risk between the government and suppliers to avoid suppliers capitulating under strain.
The collapse of construction and business services giant Carillion in January 2018 was the result of the supplier taking on too much. Large service providers, including IT suppliers, are often highly skilled at the processes required to win contracts even if they are not best suited to the work they are bidding for.
A Public Accounts Committee (PAC) report last year warned that the government would have to introduce better contracting practices if it were to achieve anything beyond lowest price.
“Outsourcing is at a significant crossroads,” the PAC said at the time. “The collapse of Carillion has brought to a head concerns about the government’s approach – both from a policy and a practical perspective.”
The UK government spends £251.5bn per year on outsourcing and contracting, with a significant proportion of this on IT. But all too often, it fails to get value. At the same time, suppliers are putting themselves at risk through committing to contracts they can’t deliver in the pursuit of revenue growth.
To reduce the risk of project failure, the new guidelines, published in the government’s Outsourcing Playbook, will allocate risk to the organisation that can manage it better.
By placing the risks on the organisation that can best manage them will reduce the chances of supplier failure and help smaller suppliers compete for contracts.
Last year’s PAC report said the “high-process burdens, financial risk and complex requirements made SME involvement more challenging”.
Another change aimed at reducing the risk of project failure will see projects piloted in the private sector before public sector roll-out.
Cabinet Office minister Oliver Dowden said the new rules would make the government a more attractive customer for service providers.
“The playbook makes explicit that, when designing contracts, departments must seek to mitigate, reduce and then allocate risks to the party best able to manage it,” he said.
“A more considered approach to risk allocation will make us a smarter, more attractive client to do business with.”
Read more about government outsourcing
- The government needs to change the market that supplies it with services through better contracting practices if it is to achieve anything beyond lowest price, says a PAC report.
- Government figures show direct and indirect spend on SMEs by government departments in the 2016/17 financial year have fallen.
- Although Carillion’s problems are unlikely to hit major IT services suppliers, its collapse is a reminder of the need for good governance.
- The demise of construction and services giant Carillion has brought fresh scrutiny of outsourcing in government.