Public Private Partnership – the UK Experience

The UK government pioneered the use of competitive tendering of public services in the 1980s, when Margaret Thatcher was prime minister. In the decades since, as outsourcing has expanded and other governments around the world have sought to copy some of its practices, the UK should have become better at negotiating and managing such contracts. Unfortunately, this does not seem to be the case. The January collapse and liquidation of Carillion, an outsourcing group with 43,000 employees in the UK and abroad, focused attention on the deficiencies of the system. Much of the blame for the dysfunction lies with the government. Britain’s Labour opposition has said it will almost certainly ditch the decades-old outsourcing programme if it comes to power. It would then return to paying for and managing public projects directly. Abandoning the outsourcing project altogether would be a mistake. Properly analysed, selected, costed and overseen, such projects can run better in the private sector than under public ownership and management. But the government needs to be able to prove, in each case, that private contractors provide better services, more cheaply. To date, the UK’s experience — particularly under the private finance initiative introduced by John Major, Thatcher’s successor — has been highly variable. The government has too often used public sector contracting as a way to shift large liabilities off the public balance sheet. One area in which the UK has raised its game is the initial negotiation with private companies. Until recently, the core competence of big outsourcing groups such as Capita, G4S and Serco often seemed to be the ability to drive a hard bargain in contract talks. Civil servants’ improved prowess in the art of the deal has caused other problems, though. A recent report on the Carillion collapse by the House of Commons’ public administration select committee pointed out that the government’s expertise in beating down prices has led companies to skimp on quality. Consolidation in the sector has also created an oligopoly of large suppliers in some areas. The committee accused the government of lacking basic skills in areas such as costing, project management, information technology and financial planning. Government departments have had to renegotiate £120m of contracts since the start of 2016 because they were too aggressive in transferring to the private sector risks they did not comprehend. MPs reserved a modest round of applause for the way in which the government handled the collapse of Carillion. But it would be a bad sign if officials had more opportunities to hone their skills as crisis managers. They must focus instead on prevention rather than cure. The government has adopted set processes on how to evaluate private-sector options. It should follow them, rather than flout them. It should be more open about the justification for and details of the deals that it strikes, instead of hiding behind the cloak of “commercially sensitive information”. That would allow the public to assess whether the government or private companies were the better steward, and scrutinise the state’s dependence on large contractors over the range of services they supply. Outsourcing public services is more than just a decades-old British tradition that can avoid scrutiny and explanation. Until government officials can boast an up-to-the-minute understanding of the risks borne by their private sector partners, the chances of another Carillion-shaped crisis will remain high.