Clause and effect – how to prevent government contracts from going wrong

January 17, 2017 1:52 PM

Rousseau’s Social Contract may have seen man as being everywhere in chains, but many of the state’s contracts with private companies leave taxpayers’ money chained into poor deals. In light of this, the NAO has today released their investigation into HMRC’s failed contract with Concentrix, a private company it hired to help it assess tax credit awards. The report does not make for pleasant reading, as Concentrix’s performance left much to be desired. The prediction from HMRC was that Concentrix’s work would save £1 billion by helping it to investigate one and half million more cases a year, stopping over payments and preventing incorrect claims. They expected to pay Concentrix between £55 million and £75 million. Even when there were clear signs of problems in the system by March 2016, HMRC still predicted a saving of £405 million.

 

HMRC had a business case that set Concentrix numerous performance targets. It failed more than half of them. These included:

  • In July 2015, it answered an average of 4.8 per cent of calls within five minutes against the target of 90 per cent.
  • By 20 September 2016 when the high-risk renewals process was scheduled to complete, there was a backlog of 181,000 open cases.
  • In August 2016, Concentrix had estimated 8,000 calls a week,   but actually received around 50,000. This meant that some claimants were unable to contact Concentrix to discuss their award.
  • About 12 per cent of cases investigated led to changes or suspension of tax credits. 32 per cent of these decisions were overturned following a mandatory reconsideration by HMRC.
  • Concentrix were eventually offered a higher rate of commission, from 3.9 per cent of savings made up to 11 per cent.
  • Even their sub-contractors were operating much below their targets. In June 2016, for example, their sub-contractor opened, scanned and returned 32 per cent of post within 15 days of receipt, against a target of 80 per cent.
  • Concentrix’s performance in August 2016 was also affected by IT failures, which also prevented as many callers getting through.
  • Nevertheless, HMRC still made a saving of £193 million, even after the £32 million that eventually went to Concentrix.

 

Eventually, HMRC and Concentrix agreed to terminate the contract in November 2016, many months ahead of schedule and HMRC employed several hundred of Concentrix’s employees to continue their work. HMRC told the NAO it had concluded that “the risks of a third-party arrangement to customer service outweighed the benefits” even though the contract had enabled savings of almost £200 million.

There is nothing inherently wrong with outsourcing, indeed HMRC predicted its deal with Concentrix would save over £1 billion pounds. The problem with tendering out services to private providers seems to come largely in the contracting. The civil service does not have expertise with contracting, nor with project management or delivery, and that leads to the fiascos with Concentrix, G4s and Serco. These companies are often much better at winning the contracts than fulfilling them. We have written before about the need to take past performance into account when considering future contracts.

Taxpayers also need to be better protected in the contracting process, with safeguards to stop costs ballooning and to prevent their money being used to bail out failing projects. Fortunately, the Public Accounts Committee did a good job with pouring scrutiny on the issue; they challenged Concentrix’s approach (focusing on single parent claimants and being too threatening in their letters). This transparency needs to be evident throughout the tendering process to prevent issues before they are implemented.

Companies can make mistakes just as much as government bodies can. The important point is to ensure that the contracting process is more transparent, and conducted with taxpayers’ money in mind. An overhaul in the civil service is also required to bring in the skills required to oversee privately-contracted firms. Efficiencies can and should be made through tendering out services, but they need to planned and carried out effectively or the public will turn against them, costing us all more in the long-run.

 

 

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