Government Procurement

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ToDo: This page is a duplicate of Outsourcing. Combine.

Public Sector Procurement

  • Dec.17.2018: The source of a sector in crisis? In fact, there are six of them. Shares of the industry’s heavyweights, government contractors providing public services, looking after public buildings and estates and/or building them, have plummeted. The reasons why — and why recovery, if at all, has been slow — are troubling enough on their own, but added together they sum up the huge challenge facing the outsourcing industry. Serco fell apart amid the scandal of defrauding its most important client, the Ministry of Justice. Paul Pindar, the man who built up Capita, left a business universally known as “Crapita” and whose business model has since unwound. Baroness McGregor-Smith’s ten-year tenure at Mitie was punctuated by fallouts with analysts and ended after her entry into social healthcare crashed spectacularly in a swamp of red ink. Nick Buckles left G4S when it was discovered that he was a few thousand security guards short of a safe 2012 Olympic Games. Trust in the integrity of the sector has been shot through by sharp accounting practices. The slow-burning decline of the outsourcers can be traced back to Francis Maude in 2010, when the Cabinet Office minister put an end to the public-private procurement profligacy of the Blair/Brown years. Even amid the awakening to a new world of financial discipline, companies still routinely lowball each other to the point where bids end up lossmaking. The domestic players with their stretched resources and frail balance sheets have been competing against the well-funded firepower of multinationals such as Sodexo of France, ISS of Denmark, or Amey, part of the Spanish Ferrovial empire. The outsourcing sector grew fat on the public-private partnership model, but as the PFI era unwinds, there is no politician of weight on either side of the House of Commons prepared to engage in the building of public works with private sector contractors on 25-year money-making schemes. Even proponents of properly-procured PFI look dolefully at the breakdown in acrimony of the £2bn highways contract between Birmingham City Council and Amey. Robert lea, The Times.

Goods + Services


Public Private Partnerships

  • Jul.10.2018: Alternatives to PPPs – growing instances of de-privatization The fight against privatization is not just a fight to stop the sale of our public services. It is also a fight for the type of society we want, a fight for social justice and equity. Those seeking to profit from privatization promote a range of myths. As privatization became a public relations liability in the 1990s, corporations began to promote Public-Private Partnerships (PPPs). As civil society organizations and trade unions work to expose PPPs, their tactics evolve further with new and equally dangerous corporate tools developing all the time. In recent years, the corporate sector has invested heavily to facilitate the privatization of public services. Their strategy involves the creation of an ‘enabling environment’ of legislation and regulations to attract and protect private investors, financializing infrastructure as an asset class, and govern- ment-funded facilities to prepare a flow of profitable projects. States are increasingly using public money – including taxes, pension funds and official development assistance (ODA) – to offset any risks to private investors. Trade agreements are also used to create a facilitating environment and lock in privatizations. Privatization is further facilitated by arbitrary limits on govt borrowing and spending. Rising debt is often used as a pretext for privatizing assets, instead of demanding that corporations and the very rich pay their share of tax. The UN, the G20 and the OECD have all recently called for more private investment in public services and infrastructure. Contrary to the rhetoric of private sector efficiency, a major driver of privatization is the expected profit produced by job cuts and lower labour costs. Privati- zation is used to break unions’ collective agreements, drive down wages and labour conditions, introduce precarious work and destroy unions. Social Impact Bonds (SIBs) are the latest mutation of privatization in areas such as offender rehabilitation, youth work and employment services. They reinforce the false idea that only the private sector can innovate. They convert complex social services to financial instruments, which are difficult to admin- ister, and drive resources into fixing the symptoms of social problems, not the causes. A recent report, “Reclaiming Public Services”, prepared by the Transnational Institute, provides an in-depth world tour of new initiatives in public ownership and the variety of approaches to de-privatization. It shows that there have been at least 835 examples of (re)municipalization of public services worldwide since 2000, involving more than 1,600 municipalities in 45 countries. more Public Services International.
  • Mar.20.2018: Auditors expose the failure of public-private partnerships (PPPs) and slam EU’s support. The European Court of Auditors today slammed PPPs, stating that they were "not always effectively managed and did not provide adequate value-for-money". The report recommends that "the Commission and the Member States should not promote a more intensive and widespread use of PPPs until the issues identified in this report are addressed, in particular, increasing assurance that the choice of the PPP option is the one that provides most-value-for-money". Maria Jose Romero, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad) said: "We strongly welcome this report. The failings of PPPs have been clear for many years yet govts and institutions like the EU and World Bank go on promoting them. More than 150 organisations from around the world signed onto a campaign manifesto in Oct.2017 calling for the World Bank and similar bodies to stop promoting PPPs. Maria Jose said: "We have seen numerous scandals across Europe associated with PPPs which have done huge damage to some public sectors. Even worse, we have seen the same happen in some of the poorest countries in the world where govts have been advised to take on risky and expensive projects and have paid a high price". Xavier Sol, Director of Counter Balance, added "This critical report comes as a reality check: a more cautious approach towards PPPs is needed as they are not a silver bullet. It raises doubts about the blind focus on PPPs promoted by the European Commission and its financial arm the European Investment Bank – which has supported several of the weak projects audited by the Court. (Twitter thread here) Eurodad.
  • Mar.16.2018: The fiscal costs of PPPs in the spotlight. PPPs are increasingly being promoted as a way to finance development projects. To pave the way for PPPs, donor govts and financial institutions, led by the World Bank Group, have set up multiple donor initiatives to promote changes in national regulatory frameworks, to provide advice and to finance PPP projects. The cost of financing for PPP projects is typically higher than for public sector works. In the case of the United Kingdom (UK), a 2015 review by the UK’s National Audit Office found ‘that the effective interest rate of all private finance deals (7%-8%) is double that of all govt borrowing (3%-4%)’ The costs of PPPs result not just from explicit liabilities, but also from non-transparent contingent liabilities. In addition, PPPs often suffer from a lack of transparency and limited public scrutiny. Taken together, these factors tend to result in a heavy fiscal burden that undermines, in the medium and long term, the State’s capacity to support other services. Finally, many govts record the costs of PPPs in financial statements and budgets in a way that creates a false incentive for using PPPs. Current accounting practices allow govts to keep the costs and liabilities of PPPs off-balance sheet, and thus to circumvent budgetary constraints. However, shifting public debt to govt-guaranteed debt does not reduce gov'tal debt liabilities. Rather, it obscures accountability and hinders scrutiny by parliamentarians and the public. in 2017, Eurodad joined more than 150 organisations in launching a PPP Manifesto. The World Bank has been playing a leading role in incentivising PPPs by providing advice and financing to change national laws and to structure PPP projects. Maria Romero, Eurodad.
  • Mar.2015: Why PPPs don't work: The many advantanges of the public alternative. This report provides a background to Public-Private Partnerships (PPPs), shows how PPPs are being promoted, outlines the major problems of PPPs, evaluates PPPs and outlines a public alternative. PSIRU, David Hall
ToDo: Go through this, it looks excellent.

Private Finance Initiative

Panorama: PFI Scam (2013)

The Centre for Health and the Public Interest have done a great deal of research on this; the results are appalling.

  • Nov.14.2018: Ministers are long gone before their pet projects can be sorted. PFI is dead. The Public Administration and Constitutional Affairs Select Committee, which I chair, wrote the epitaph for PFI in our "After Carillion" report published this year. What was once a way of doing business for govt has become discredited, not least because of the govt’s admission made to the committee in oral evidence that it was only the accounting rules that drove the state to push as much financing for public sector projects off its balance sheet, despite the extra cost of capital if raised privately. So there is an intention to reshape the way in which govts commission, finance and implement projects. Will this now be without private finance? The govt has not said that. So what next? The committee will find out. We have launched an inquiry into the govt’s management of big projects, via the Government’s Major Projects Portfolio (GMPP) and individual departmental responsibilities. The GMPP includes 133 projects, with a value of some £423bn, including Crossrail and HS2. It also includes less high-profile but no less significant IT overhauls, projects to transform public services and defence procurement programmes. The management of such projects has, however, been criticised for a lack of accountability, poor early planning and limited govt capability by the National Audit Office. Sir Amyas Morse, comptroller and auditor-general at the NAO, raised a number of salient points, particularly in relation to the way in which these projects are initiated and subsequently run by the civil service but at the behest of ministers. Bernard Jenkin, The Times.
  1. Private Finance Initiative 1 (PFI1): W:Private finance initiative, Another Angry Voice
  2. Private Finance Initiative 2 (PFI2), W:Private finance initiative#PFII2, Intro to PF2
What is PFI?
Private finance initiative deals were introduced under John Major in 1992, but became widespread under Tony Blair. They are typically used for public buildings and infrastructure. PFI schemes introduce private investors into the design, building, finance and operation of new facilities which are then rented back by the state.
Why did it become widespread?
PFI allowed ministers to build schools and hospitals with minimal upfront costs to the Treasury. It was a way to commission popular projects without immediately hitting the public purse.
Why is it controversial?
It massages public finances in the short term, but holds a higher long-term cost. In 2013-14 about £10bn was spent on servicing PFI contracts, with about £4bn of this on debt and interest.
Where is the money going?
Firms that have built NHS hospitals using PFI deals have made pre-tax profits of £831m over the past six years, according to the Centre for Health and the Public Interest. Firms such as Carillion, Interserve and Kier Group are among the big players.
What is PFI2?
Created in 2010 by George Osborne, PFI2 aimed to cut long-term taxpayer liabilities and trim excessive profits. In essence, it is meant to be "less private and more public", with the state taking stakes of up to 49%. A board is appointed and annual accounts printed. It cuts back on bank financing (from 90% to 80%), improves transparency and accountability, and speeds up procurement to cut costs. PFI2 deals aim to be smaller, dealing more with facilities and services, rather than building. The govt calls it "PF2", not PFI2.[1]
  • Feb.19.2018: PFI firms to get £4.8bn from schools by 2020, study shows. Schools will have paid £4.8bn to private finance initiative operators by 2020, generating an estimated £270m of profits for the companies from taxpayer money, analysis has revealed. The study bolstered calls for a windfall tax on the PFI firms that build and run schools, with the figures also showing that they will have cashed £60m in corporation tax cuts, including £27m in the 4 years to 2020. The profits for PFI firms involved in schools will equal about a fifth of the extra £1.3bn given to schools in govt funding last year, according to research by the Centre for Health and the Public Interest (CHPI) thinktank. The slashing of corporation tax in the years since the majority of education PFI deals were signed has provided a windfall for the companies involved. Kevin Courtney, the joint general secretary of the National Education Union, said the sums were "shocking, particularly in the context of the huge real-terms cuts to school funding". Stella Creasy: "It is horrifying to think that nearly £1 in every £4 the govt claims it's giving to schools in extra funding is going out the door and into the pockets of PFI companies instead as profit”. The Guardian, Jessica Elgot
  • Jan.2018: Out of Contract: Time to move on from the ‘love in’ with outsourcing and PFI. David Walker, John Tizard, The Smith Institute.
  • Jan.31.2018: Brexit could fuel PFI comeback. The purveyors of PFI, or Public Private Partnerships as they became, were wise to its limitations even back then. They could also see that public opinion was sceptical about buying new buildings, new homes for soldiers and even air traffic control systems on extremely long "never-never contracts". There were two big problems with PFI: to qualify for PFI status there had to be a so-called "genuine transfer of risk" to the private sector. This was supposed to mean that contracts could be priced more effectively and that the govt or client would only pay for the outcomes, without the headache of making those happen. The NAO confirmed last week "buy now, pay later" generates no financial benefit for the taxpayer. All of this fervent transfer of risk meant that the govt and local authorities were awarding contracts, increasingly, on cost only. Lowest bid won. There must be a new model for public procurement. But even under Corbyn there has to be a role for the private sector in providing infrastructure. The New European, Angela Jameson
  • Jan.25.2018: Private Eye just masterfully exposed the ridiculous reality of Tory cronyism. PFIs are essentially scams used by govts to finance infrastructure projects by borrowing money from private companies. The deals left the incumbent govt looking good in the short term, because PFIs allowed them to keep the borrowing off the balance sheet, but they burdened future govts with the cost of paying off the exorbitant amount of interest attached to such schemes. {more...} Evolve Politics, J.D. McGregor
  • Apr.11.2016: Edinburgh's 17 closed PFI schools may have to be rebuilt. City of Edinburgh Council were forced to shut 10 primaries, five secondaries and two special needs schools because of concerns over the safety of the buildings. All the schools were part of the same PPP1 contract, initiated by the city’s Labour administration in the late 1990s. Edinburgh Schools Partnership (ESP), the body set up by Miller Construction to look after the schools on behalf of the council, insisted the buildings were safe. But contractors working on Oxgangs and the city’s St Peter’s primaries over the holidays identified serious structural defects on Friday. The chief executive of the City of Edinburgh Council Andrew Kerr assured the citizens of Edinburgh they would not be "left footing the bill". Private Finance Initiatives (PFIs) were first created by John Major's govt in 1992. The policy was a firm favourite of Labour/Lib Dem coalition govts at Holyrood. In 2002, then first minister Jack McConnell froze payments from the School Building Improvement Programme unless councils accepted PFI, calling opposition to the policy "party political". Rates for PFI tend to be substantial. One report last year suggested the UK public sector owed £222 bn to banks and businesses as a result of PFIs. EIS general secretary Larry Flanagan called for an inquiry. (Youtube video on this) Andrew Learmonth, The National.

Conflicts of Interest

Crown representatives, appointed to police public sector suppliers such as Carillion on behalf of the taxpayer, face potential conflicts of interest. Several hold external directorships and one is a Tory donor.[2]

Articles / Links

2020

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  • Aug.21.2020: Outsourcing firms miss 46% of Covid contacts in England's worst-hit areas. Serco and Sitel were paid £200m to test and trace, but reached only just over half of infected people’s contacts in some regions. The two private firms were paid an initial £192m for the first three months of the programme, with the value of the contract reaching £730m over 12 months. Their contracts had been due to expire on Sunday but have been extended by the govt. Josh Halliday, The Guardian.
  • Aug.20.2020: McKinsey earnt £560,000 for giving ‘vision’ to new English pandemic body. Lest we forget: Dido Harding, who launched test and trace in England, is ex-McKinsey. The consultants were liasing directly with her. Consultants at McKinsey were paid £19k *a day* at the peak of the pandemic to advise the UK govt on the "vision and narrative" of its chaotic test and trace programme. Financial Times.
  • Aug.20.2020: Firm linked to Gove and Cummings hired to work with Ofqual on A-levels. Public First was given communications contract without competitive tender. Public First, a policy and research firm owned by James Frayne and Rachel Wolf, who both formerly worked for Gove, has been involved on the project with Ofqual since June after being granted a contract that was not put out to competitive tender. Details of the contract have not been made public and Ofqual declined to say how much public money had been spent hiring Public First. David Conn, The Guardian.
  • Jul.10.2020: Firm with links to Gove and Cummings given Covid-19 contract without open tender. Research company Public First owned by associates of senior Tory and PM’s adviser gets £840,000 job. Awarded an £840,000 contract by the Cabinet Office, where Gove is the minister, to research public opinion about the govt’s handling of the coronavirus crisis. That contract, which runs until September, included the secondment of a Public First partner, Gabriel Milland, to work on communications in Downing Street. Public First is run by James Frayne, whose work alongside Cummings dates back to a Eurosceptic campaign 20 years ago, and Rachel Wolf, a former adviser to Gove who co-wrote the Conservative party’s 2019 election manifesto. David Conn, Peter Geoghegan, The Guardian.
  • Aug.20.2020: 'Sloppy' Whitehall departments spent £56m on COVID19 consultants. British government departments have spent over £56m on consultancy firms during the pandemic, with most contracts awarded without any competition. Sixteen private consultancy firms, including major companies like Deloitte, PwC, Boston Consulting Group and McKinsey have been working at the heart of the government’s response to the virus. Whitehall departments have not published a full inventory of contracts that have been awarded to firms during the pandemic, despite official guidelines that they should be made public within 30 days. Meg Hillier MP, chair of the public accounts committee, questioned why Whitehall was outsourcing to consultancy firms “bread and butter work that the government should be doing”. During the pandemic, ministers have used special powers to bypass normal tendering rules. The Cabinet Office did not respond to repeated requests for a response. Peter Geoghegan, Jenna Corderoy, Rob Evans, Russell Scott, David Pegg, openDemocracy.
  • Aug.17.2020: Public Health England to be scrapped after criticism of how it handled coronavirus crisis. New National Institute for Health Protection set to be in place by September, with test and trace chief Dido Harding tipped to lead it. Under the deal, McKinsey is authorised to process personal data for 7 years after the work is completed. The data includes names and addresses, driving licence details, pay, biometric data, next of kin contacts and medical conditions. Eleanor Langford, Civil Service World.

2018

  • Dec.12.2018: Giant government suppliers ‘a big risk’. Ministers are taking risks by handing so much government business to only a few large strategic suppliers and by failing to compile usable data to make better procurement decisions, according to a new report by the Institute for Government. Its report comes amid renewed scrutiny of public spending, with Interserve, another so-called strategic supplier, also regarded as being close to the brink and Crossrail revealing this week that it needs £2 bn more from taxpayers. Govt departments spend £284 bn a year with external suppliers, or £1 in every £3 of total public spending. By contrast, £184 bn is spent on employee wages. There were 28 strategic suppliers — those supplying more than £100 million of goods and services a year — and their share of the spending cake had grown from one eighth to one fifth over the past five years. Patrick Hosking, The Times.
  • Mar.20.2018: Using management consultancy brings inefficiency to the NHS. The spending on management consultancy services for the NHS has more than doubled in recent years, reaching £640m in 2014 alone. Is this money well spent? A new study finds that, instead of improving efficiency in English NHS hospital trusts, the employment of management consultants is likelier to result in inefficiency. Ian Kirkpatrick, Andrew Sturdy, Gianluca Veronesi, London School of Ecoomics & Political Science.
  • Jan.24.2018: Carillion, The Big 4 and RBS. In the second interview for Real Media, financial journalist Ian Fraser examines the relationships between Carillion, RBS bank, and the "Big 4" financial consultancies. Ian Fraser is the author of "Shredded: Inside RBS – the bank that broke Britain". Video Interview, Real Media.
  • Jan.22.2018: RBS: Small Business Abattoir - Ian Fraser (Video). In this interview, Fraser discusses RBS' Global Restructuring Group following a parliamentary debate – the unit is accused of crushing and asset stripping small businesses on an industrial scale. Video Interview, Real Media.
  • Jan.17.2018: Let Customers Hang Themselves. RBS Internal Memo published by Treasury Select Committee. An internal RBS tip sheet to make money from small businesses in distress was published by the Treasury Select Committee today, ahead of a Parliamentary debate and a hearing with the CEO and other executives at the end of the month. (download the document) Kam Sandhu, Real Media.
  • Jan.21.2018: Carillion and the RBS 'hang themselves'. Memo proves it's all over for neoliberalism. After RBS had been bailed out with taxpayers' money, it ruthlessly exploited small businesses who were suffering from the post-crash recession it had helped create. Current RBS chairman Sir Howard Davies, says that the Public Finance Initiative was a "fraud on the people" and he should know because RBS was one of the biggest names in PFI in the noughties. It is how business has learned to behave in the era of what some have called "turbo-capitalism" – the unregulated, low-tax, bandit capitalism of the last 35 years. It is not just public sector outsourcing but the entire neoliberal policy – religion almost – of privatisation that has been exposed. Ian Macwhirter, The Herald.

2017

  • Feb.01.2017: Analysis of Public Sector Procurement Reveals Growth in Tenders and Contract Awards. Public Spend Forum Europe.

2016

2015

  • Jan.12.2015: Circle's withdrawal from Hinchingbrooke hospital is no cause for celebration. The failing, privately-run NHS hospital is back in public hands from Circle, but those celebrating another outsourcing fiasco are missing a larger problem. The real debate should not be over whether outsourcing is good or bad. It is about good commercial judgment and contracting. The Crown Commercial Service, the body that provides professional procurement advice to the public sector, needs a team of experts in letting and managing such contracts, who understand risk management and are able to make objective decisions about whether a contract should be let. Until this is done and its use made mandatory, expect plenty more problems with major contracts. Colin Cram, The Guardian.

Earlier

  • Jul.13.2005: Birt quits McKinsey to end 'misunderstanding'. Lord Birt, Tony Blair's "blue skies thinker" has quit management consultant McKinsey in a bid to end the conflict of interest controversy over the company's relationship with the government. The former BBC director general stopped working as a consultant for McKinsey's media and entertainment practice in June. His position as the prime minister's unpaid strategy adviser and anointed "blue sky thinker" has raised eyebrows and hackles since it was announced back in 2001. Since that date the consultancy has won £40m worth of contracts from the Ministry of Defence alone. Julia Day, The Guardian.

References

  1. ^ Taxpayers to foot £200bn bill for PFI contracts – audit office. Rajeev Syal, The Guardian, Jan.18.2018.
  2. ^ Labour alleges conflict of interest in oversight of private suppliers. Dan Sabbagh, Kevin Rawlinson, The Guardian, Jan.21.2018.