20 July 2012

Will savaging G4S ensure that government contracting failures become less frequent?



This week, there has been an odd sense of glee at G4S’s failure to provide staff to man the gates at this summer’s Olympics. From the looks of things the Home Affairs Select Committee thoroughly enjoyed their savaging of G4S chief executive, Nick Buckles, as did media onlookers. Ed Miliband found the story useful as he made a bold statement setting out the Labour Party’s position on public sector contracting in the realm of security. David Cameron has promised to ‘go after’ G4S for the failures, getting credit for his tough stance.

There is some irony in the fact that one of the main critiques of G4S has been that they are unaccountable. The G4S share price is down by about 16%, wiping around around £700 million from the multi-national’s market value. Nick Buckles looks very much like a man whose days are numbered – possibly only still in post to act as the fall guy before the company announce “new, strong leadership” or some such. Greater transparency of providers may well be worth pursing but we have to ask ourselves about the counterfactual. Would the consequences of failure have been as visible had the recruitment role stayed with the Home Office? And what exactly was the alternative to contracting out this task? Some have jumped on this single data point of failure to argue that contracting doesn’t work but the Olympic Delivery Authority (ODA) seems to have pulled off triumph after triumph when using contractors to get the Olympic site ready on time and on budget.

Such was the Home Affairs Select Committee’s enjoyment of the G4S savaging that they forgot to ask the really tricky questions about the role of the Home Office and the London Olympic Committee of the Olympic and Paralympic Games (LOCOG) in all this. There is something odd about the fact that there have been no convincing statements of how much G4S will pay as a result of penalty clauses in the contract. There appear to be some penalty clauses at least but these appear not to be sufficiently punitive to cover the costs of failure, as seemingly recognised by Buckles when he very oddly started to accept select committee demands to pay for the costs of army and police staff making up for the recruitment shortfall. What’s more, the contracting organisations seem to have forced the rush in timescales. Initially, G4S’s contract was to supply just 2,000 staff and the contract to up that number to 10,000 was only signed in December 2011, 7 months before the games. What did LOCOG and the Home Office know when, and why were decisions made?

What really matters for effective contracting is effective organisations, with appropriate skills, governance and transparency. As the Civil Service Reform Plan published last month put it bluntly. “With more services being commissioned from outside, the Civil Service needs staff with commissioning and contracting skills; and project management capabilities need a serious upgrade”. There are plans in place to help here. For example, a new Commissioning Academy will be set up in 2013 to build these skills across the public sector.

But it is far from clear that these remedies are adequate for the scale of the challenge, nor that they stem from an accurate diagnosis of the causes of contracting failures. Upcoming Institute for Government research confirms what the NAO reported last year – that too few departments know the skills shortages they have or have plans to address them. But it also suggests government departments and agencies need new working practices to contract effectively. The contracting process can’t be seen as separate from policy and operational matters as it has been allowed to become and incentives need to change to shift focus from getting a ‘good deal’ upfront to securing value for money and quality across the contract period. Currently, it benefits the careers of those negotiating contracts to make contracts as big as possible and then secure as great a discount as possible upfront. This needs to change, to ensure that rewards come when contracts are actually deliverable and provide sufficient flexibility to allow requirements to change without huge additional fees that can make contracts poor value for money in the long run.

Without such a focus, the mistakes of G4S may be repeated – and frankly, even with such changes, a contractor will sometimes fail. What G4S really shows us is that when contractors fail they can be held to account effectively. Can the same yet be said of those organisations which oversee contractual failures and is enough being done to minimise the risk of such failures in future?


Very good article... one of the few sane and proportionate things written on this affair. Some people loathe the private sector - but it is true that the vast majority of private sector contractors have done a great job: the achievement is stunning really. Other people lionise the private sector, but it works not because it is inherently better, but because it weeds out failure. Mistakes are punished in the stock price, management firings, loss of reputation and ultimately poor firms go to the wall and resources flow, over time, to the more capable. The interesting thing is that the various markets involved can take a view of how severe those punishments should be - and, as you suggest, there are some mitigating circumstances here. The public sector delivery equivalents of these evolutionary correcting and improving mechanisms don't really exist or are very weak.

And you are right about accountability in commissioning: anyone trying to commission miracles deserves damnation. Anyone commissioning on the cheap deserves to be fleeced. Was G4S ever realistically in a position not to bid for or accommodate the expanded contract? Was its feet held to the fire to reduce unit costs?

One further thought - with 2.6 million unemployed, 1.6 million claimants, and allegedly stronger incentives to work - why was it so hard to fill these posts? Why did so many feel able not to show up to work - is that G4S's problem too? What role did JobCentre Plus or the Work Programme play?

One really interesting question is: what happens when G4S bids for the next major government contract?

The press would presumably have a field day if G4S were successful. And yet, the commissioning process is extremely rigid and has no formal mechanism for marking a supplier down based on poor performance (or indeed outright failures) in the past. When suppliers are asked to bid, they do so on the basis of putting their best foot forward - ie focusing on successes not on failures.

Assume that G4S comes out top for the next big conract. That leaves those doing the commissioning between a rock and a hard place: they can't be seen to offer another contract to G4S and yet they have no legitimate way of marking them down. What happens next is the fascinating grey area.

One final thought. At least the G4S failure was public so a strange form of accountability does kick in for a major failure. What about all those contracts that aren't delivered on but no one ever hears about so there really is minimal accountability the next time round?