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‘Merry-go-round’ culture stoking dodgy outsourcers

THE government has created a “merry-go-round” culture that encourages firms to bid for contracts at undeliverable prices, a panel of MPs warns in a report published today.

In the wake of the collapse of outsourcing giant Carillion, the public accounts committee raised concerns about the emergence of a small group of large companies that win public contracts despite not delivering a good service in return.

Little consideration is given to whether businesses can meet the demands of a contract at the right price, according to the committee.

Around £250 billion a year of public money is spent through commercial relationships, but too many contracts are “secretive or opaque,” the report says, adding: “Quite frankly, the taxpayer deserves better.

“The government has allowed a culture to develop in which a small number of large companies that believe that they are too big to fail pursued new business with little apparent consideration of their ability to deliver the right service at the right price.”

Carillion was Britain’s second-largest construction and outsourcing company, employing around 43,000 people, until it collapsed under a debt pile of £1.5 billion in January.

The committee said Carillion’s failure had “brought to a head” concerns about the government’s approach to procurement, which covers contracts for everything from benefits claimants’ medical assessments to making nuclear weapons.

MPs warned that Whitehall’s red-amber-green rating system for outsourcing companies was not working “either as a carrot or as a stick.”

Labour MP Meg Hillier, who chairs the committee, said: “[The government] must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs.”

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