Recommendation 3

We are not convinced that accounting officers give sufficient consideration to the commercial models of those they contract with, which means they do not understand the potential risks (including supplier failure). HM Treasury suggests accounting officers should produce a formal Accounting Officer Assessment for 6 Monitoring and responding to companies in distress any significant novel and contentious proposal involving the use of public funds. However, we often see a tendency in government to push ahead with new projects and commitments involving the private sector without careful consideration of the risks and liabilities it exposes the government to. Too often, the government has failed to understand the economic and business models of the suppliers it contracts with, and as a result has not been able to assess whether the gain-share and pain-share mechanisms of the contract are appropriate. This includes risks with outsourcing a service for the first time in “untested markets”, which we saw materialise when the Ministry of Justice rushed through reforms to outsource probation services to community rehabilitation companies. The Government Commercial Function now advocates piloting and scenario-testing in these situations but could not tell us how it measured success. Recommendation 3: HM Treasury should set out in the Treasury Minute response how it will ensure accounting officers explicitly address the risks presented by suppliers’ commercial models in Accounting Officer Assessments for new projects and commitments involving private companies. Should the assessment identify a risk of company failure, we expect it to include an estimate of the impact of supplier failure, high-level contingency plans should failure occur, and an estimate of the potential costs incurred.