Public Services > Central Government

NAO backs improved government access to outsource costs

Neil Merrett Published 01 July 2015

Findings into Whitehall's use of open-book accounting also call for common data standards, as outsource group says scrutiny should focus on added-value over profit


The National Audit Office (NAO) has called for the formation of a task force within government to outline common standards for providing open-book data concerning its contracts with suppliers to improve supply chain transparency over the costs of outsourcing.

Based on the findings of a new report on open-book accounting and assurance in the government's supply chain, the auditor has called for the Cabinet Office to developed better guidance over interpreting supplier costs and profits, in order to allow its staff to better scrutinise deals linked to the delivery of public services.

Open-book accounting is a term referring to a form of supply-chain assurance whereby financial information on contracts relating to cost and profit is provided to a client - in this case the government. These details may also be subject to greater public disclosure under Freedom of Information laws.

Based on its findings, the NAO recommends that the government ensure all "major" contracts have a strategy in place concerning the collation and use of open-book information, with every department also implementing a policy for when to make use of the assurance in their accounting.

A survey conducted by the auditor of 332 government contracts indicated that only 31% of the scrutinised agreements offered open-book accounting, which was not always received even in these cases. The same findings said that 23% of government organisations have presently put in place a policy around the use of open-book.

NAO head Amyas Morse said the report highlighted the need for closer scrutiny by the government of its contracts.

"Contract management is not a desk job. We are reminded of this in all the best practice and the worst failures we see," added Morse. "For government to be accountable for contracted out public services; for it to understand its suppliers; for it to exercise oversight; and for it to promote value for money, it requires its contract managers to take a 'hands-on' approach and to go and see for themselves what their suppliers are doing."

Among other key recommendations, the report has backed the following commitments:

- The addition of increased supply-chain assurance to the government's commercial skills programme
- The Cabinet Office should improve guidance for interpreting the business model of suppliers along with costs and profits
- All departments should integrate open-book requirements into the procurement of contracts, while combining these details with information on performance and quality
- Government should look to negotiate open-book access rights to existing contracts on a retroactive basis

Responding to the findings, Kerry Hallard, chief executive of the National Outsourcing Association (NOA), said the organisation supported calls for a common standard on open-book data to address concerns that existing reporting requirements for government contracts were too varied.

"The NOA has always advocated openness and transparency between parties to an outsourcing contract. However, our experience is that such relationships are difficult to impose and the parties need to have a degree of flexibility. A lack of flexibility often leads to strategies for avoidance and perversely less openness," she said.

Hallard claimed that to ensure open-book accounting was effective, it would be vital to ensure such assurance was applied "within reason".

"For example, some pricing models are very advanced and are clearly the intellectual property of service providers and should not be put in the public domain. There is also the risk that publishing pricing could affect future competition among suppliers, pushing prices down and even resulting in poor performance," she said.

"The focus needs to remain predominantly on ensuring the contract delivers at least the target outcomes and focuses on value-add rather than an intense focus on the profitability.

"Many service providers spend years and millions fine-tuning their specialist processes and technologies before they become profitable - these investments need to be paid for and further encouraged, not penalised, as this may serve to limit future investments in process improvements and in the end cost the public purse more. It is also important to keep in mind the need to ensure the public sector remains an attractive customer to those organisations that are able to add most value."

Hallard added that polling was currently being conducted of NOA members to draw up a wider industry response to the auditor's findings.

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