Many are still struggling to assess what caused Carillion’s spectacular demise, and how it could be prevented in future. It was with this in mind that on Wednesday 4th July the WCPP hosted an expert panel to discuss the lessons to be learnt in Wales from Carillion’s collapse and consider the future of outsourcing in Wales. Joining the stimulating discussion were Milica Kitson, Chief Executive of Constructing Excellence Wales; John Tizard, an independent expert on public procurement; Matthew Mortlock, Director of Performance Audit, Wales Audit Office; and Monmouthshire Councillor Phil Murphy.
Key themes emerged both during the debate between the panel members and subsequent Q&A with stakeholders:
Do we know our commercial partners?
It was highlighted that there is no single overview on the contracts and contractors supplying public services (in England or Wales), making it difficult to coordinate a response if a supplier like Carillion is at risk of failing – or to understand and manage our public service markets day to day. A potential answer was put forward in the form of John Tizard’s suggestion of a ‘Domesday book’ for all contracts and contractors.
He also questioned whether it might be most effective for that ‘Domesday book’ to be UK-wide, given providers operate across national borders. Ideally, we in Wales would best collaborate with our neighbouring public service markets to maximise the visibility of firms and their contracts, and so effectively manage our own markets. Not knowing the exposure of firms to contracts throughout the UK and abroad would lead to only a partial and incomplete understanding of the sector. The absence of such a resource was highlighted as a factor contributing to the poor response to Carillion: a year before its collapse, even as it was apparent the firm was getting into serious difficulties, the UK Cabinet Office simply did not know how many public sector contracts lay with the firm.
Valuing contract management
There was a feeling that contract management is where things often go unstuck, and that unless we see this improve then Carillion may very well not be the last case of its kind. Concern was expressed that procurement capacity in Wales is under stress – with a particular impact on the management of contracts.
One important suggestion was that all contracts need a dedicated contract manager. The logic of pooling procurement and contract management expertise into a shared service was highlighted. Lessons from the current National Procurement Service internal review, as well as Public Accounts Committee scrutiny of the NPS, will of course be important in thinking how to take joint procurement initiatives forward.
Get strategic on services
A key challenge raised was for public service leaders to get “strategic” about the decision to outsource in the first place – and regularly keep things under review. Framed as the “make or buy” decision, it was suggested that those leading service functions should revisit the question of whether a public service is best delivered in-house or externally; every time a contract comes up for renewal they should say to themselves “don’t assume just because we’ve been buying a service, that we should continue to buy it without question.”
Achieving social value
Contributors also considered how to move to a better and more sustainable future, for public services and those delivering them. One idea was to expand the building of social value into contracts, an ambition reflected in a number of Welsh Government plans which include commitments to deriving more social and economic value from Wales’ £6 billion annual spend on goods, works and services. Trade union stakeholders felt procurement contracts offer an opportunity to improve working conditions within the terms and conditions of the contract. However, a major caveat to these kinds of clauses and conditions is a need to balance them with the overall commercial viability of a project or contract.
It was felt that there was a clear need for contingency planning for the collapse of companies like Carillion to minimise disruption. Amongst the most prominent of the options discussed was the importance of having an exit strategy ready for each project should a firm fold, essentially ‘living wills’ for an orderly handover or winding-down of projects.
Better market management
Clarity of project pipelines, standardised procurement processes and collaboration with commercial partners were all suggestions to ensure better market management. The Wales Infrastructure Investment Plan was praised highly for giving industry a forward view in terms of a pipeline of work. Some business stakeholders want to see a shift in public procurement culture away from simply being about the lowest price (which in the case of Carillion often turned out to be unrealistic), and more about the overall benefits of a project – and working in partnership with suppliers to get it right. There was a recognition though of the challenge of making that change during ongoing austerity.
Many stakeholders raised concerns that the case of Carillion showed up failures of accountability that need to be addressed, across the whole system. For example, Milica Kitson felt strongly that there was ‘no consequence’ for public organisations when procurement or contract management was done badly – and that this needs to change fast. Another suggestion was to build whistle-blower provisions into public sector contracts, so that serious issues can be identified early. Concern was also expressed about the dominance of the big auditing firms, and a Competition and Markets Authority review was recommended by one participant.
For me, a conclusion emerging from the event was that procurement has not been taken seriously enough in the past – and that perhaps it has taken Carillion to demonstrate that. Procurement, it was felt, should be a strategic issue, overseen at the top table of public service organisations. It is in their best interests to be making good procurement decisions, effectively managing contracts and collecting data to monitor, evaluate, learn and share good practice across Wales and the wider UK.
It is for these reasons that the Wales Centre for Public Policy is exploring how we can provide evidence and expertise to public service leaders, to better support them in taking on the challenge of fully maximising the social, environmental and economic value of procurement across the public sector, to leverage the best possible outcomes for the people of Wales now and in the future.