14 February 2019

The Seaborne Freight cancellation has captured headlines, but the problems with government contracting go much wider, argues Benoit Guerin.

As part of the Government’s attempts to mitigate the impact of a no deal Brexit, the Department for Transport (DfT) awarded a £13.8m ferry contract to a company with no ferries.

Chris Grayling, the Transport Secretary, was widely criticised, but this incident is more than a ‘Grayling failing’. It is part of a wider pattern of government failure on procurement and outsourcing, with markets becoming less competitive and the government failing to ensure it has the information it needs to assess companies bidding for contracts.

The Department for Transport signed off the deal without due diligence

The DfT initially ran the procurement over a weekend. After receiving no compliant bids, it quickly re-ran the process. This time it received three bids, two of which were not compliant. It still awarded contracts to all three bidders, despite Seaborne Freight failing to meet the economic and financial assessment.

This rushed procurement was justified by using an ‘extraordinary urgent process’ to bypass normal procurement regulations and the contract was quickly awarded without proper competition. Chris Grayling said the urgency was due to a change in the department’s understanding of disruption at ports. But MPs questioned whether this would stand up in court given that the department has had since March 2017, when Article 50 was triggered, to prepare for ‘no deal’.

Nor is Seaborne an isolated case for the DfT. Eurotunnel has submitted a legal challenge on three ferry contracts that the government has awarded, arguing that the procurement process was ‘secretive and flawed’ and that no public notice was issued.

In the face of the public outcry, Chris Grayling said he ‘stands by the robust due diligence carried out on Seaborne Freight’. Yet an NAO memorandum revealed that, despite spending £800,000 on advisors, the DfT was unable to undertake proper due diligence due to a lack of financial information on the company.

Instead, it relied on the company’s own self-appraisal. Arklow Shipping, which had been in talks to invest in Seaborne, appears to have pulled out after seeing the state of the company’s finances. “We looked at it. We tried to make it work. It didn’t. That’s it,” an Arklow spokeswoman told Channel 4 News.

The Seaborne ferry fiasco is not an isolated case

While Brexit has clearly played a role in the excessive secrecy in Government contracting, the Seaborne saga echoed wider failures in the Government’s approach to procurement.

A recent investigation by the FT found that nearly a quarter of public sector contracts are awarded to sole bidders without proper competition. Our research has found that Government departments lack vital information about who its suppliers are, and the length and value of key contracts. This makes it impossible for contracting authorities to make informed decisions about who to award contracts to and on what basis.

This problem is not unique to Whitehall. Last May, an eight-year contract – worth £238 million – for escorting prisoners in Scotland was awarded by the Scottish Government to the sole bidder after G4S and Serco, both of which have experience running similar contracts, pulled out.

The Government needs to fix its outsourcing process

Chris Grayling has dominated the headlines, and not in a good way, but it is clear that problems with the Government’s handling of procurement go far beyond his department.

Given that the Government spends a third of public expenditure each year on procurement and outsourcing, and in light of the potential risks to public services and questions over the UK’s preparedness for Brexit, it is vital that the Government steps up its efforts to fix outsourcing. This means more transparency – and a review of the Government’s entire approach to managing its markets.

 

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