Source · Select Committees · Public Accounts Committee
Recommendation 14
14
Accepted
Government remains vulnerable to provider failure in outsourced public services, despite measures.
Conclusion
For several decades, successive governments have contracted out public services to private providers. Where providers or suppliers fail, the government is often the fall-back owner of risks. This was demonstrated when Carillion failed and the government had to step in to fund a trading liquidation while contracts and services were transferred.38 We asked the Cabinet Office how likely it was that we would see another Carillion. It told us “never say never” but that it had introduced ‘playbooks’ to help define how to go to market in these areas. For complex outsourcing where government is the only customer, the Cabinet Office told us that it is “particularly important that we really understand the economics for the supplier and whether the gain share and pain share mechanisms are appropriate” and that it had “spent a lot more time thinking about that recently”. The Cabinet Office also explained how it requests a living will statement for critical contracts or complex outsourcing contracts. Each year, the vendor will have to confirm to the contracting authority whether it still passes the financial entry tests that are expected to be met at the beginning of a contract.39
Government Response Summary
The government states the recommendation is already implemented, detailing its Lead Government Department approach for emergencies, significantly improved supplier monitoring since Carillion, the Sourcing Playbook, and the Cabinet Office's monitoring of strategic suppliers and critical sector resilience strategies.
Government Response
Accepted
HM Government
Accepted
1.1 The government agrees with the Committee’s recommendation. Recommendation implemented 1.2 The government uses a Lead Government Department (LGD) approach to cover all phases of emergency planning, response, recovery and risk assessment. Usually, the LGD is the department with primary policy responsibility for the risk and expertise for the area impacted by the emergency scenario. 1.3 LGDs should escalate supplier and company risks through their internal escalation routes and to Cabinet Office and HM Treasury as required, for example should the department identifying the risk not be the clear lead for response, if intervention is being considered and HM Treasury spending approval may be required, or for additional expert support. 1.4 Monitoring of suppliers for financial distress has improved significantly since Carillion’s liquidation in 2018. The Government Commercial Function’s ‘Sourcing Playbook’ and associated guidance provide recommendations to departments regarding regular monitoring of suppliers’ financial performance. 1.5 The Cabinet Office monitors the strategic suppliers to government and proactively engages with public sector stakeholders to share intelligence, including bringing together customers of a common supplier where appropriate. Where there is a high level of exposure across multiple departments, the Cabinet Office may coordinate a response. 1.6 Responsibility for supply chain resilience and corresponding intelligence lies with LGDs. The government has published several strategies to ensure resilience in supply chains for critical sectors, for example on semiconductors, batteries and critical minerals. Supply chain intelligence is regularly gathered by sector teams from conversations with industry and shared with ministers and between officials.