November 12, 2013 / 12:10 AM / 6 years ago

UK government auditor questions reliance on big contractors

LONDON (Reuters) - A review of Britain’s use of big companies to run services from prisons to hospitals raised questions about whether the rise of a few major contractors was in the public interest, the National Audit Office (NAO) said on Tuesday.

Margaret Hodge, Labour Party Member of Parliament and chairwoman of the Public Accounts Committee (PAC), poses for a portrait after speaking to Reuters about corporate taxation, in Westminster, central London April 24, 2013. REUTERS/Andrew Winning

And it said transparency on profit made from government contracts was limited, with firms’ tax affairs hard to understand, setting the agenda for a parliamentary grilling of some of the state’s biggest suppliers next week.

Two NAO reports on government contractors, based largely on information from Capita (CPI.L), G4S (GFS.L), Serco (SRP.L) and Atos (ATOS.PA), will form the basis of two Public Accounts Committee hearings later this month, one with representatives from the four firms, and another with government officials.

“I asked the NAO to carry out this work after looking at case after case of contract failure ... in each case we found poor service; poor value for money; and government departments completely out of their depth,” Margaret Hodge, the lawmaker who chairs the PAC said. “These reports together raise some big concerns”.

The political spotlight is firmly on Britain’s 187 billion pound public sector contracting market after a series of high-profile contract failures.

There are currently eight reviews of the industry, including a criminal investigation into G4S and Serco’s botched prisoner tagging contracts launched earlier this month.

A Serco spokesman pointed to the firm’s corporate renewal program, announced in October to rebuild its relationship with its largest customer, as evidence of its improved transparency.

A spokeswoman for Atos said it had been open and transparent with the NAO, whilst balancing its ability to compete for future work.

The NAO added that the Cabinet Office, which is currently deciding whether G4S and Serco can work for government again, should develop a more “mature” approach to dealing with its biggest suppliers.

It said a balance must be struck between short-term savings, which have mostly come from fierce contract renegotiations, and innovation and investment.

Until the austerity-focused coalition came into power in 2010, suppliers like Capita and Serco enjoyed double-digit revenue growth for two decades.

In some markets, such as private prisons, child custody and medical assessments, there are only a few large providers which the NAO said could be considered “too big to fail”.

Some 3 billion pounds of the 40 billion spent by central government each year on suppliers is with the four firms in the report.

Capita said in a statement that all its businesses seek to ensure value for money in an open, fair and transparent way.

A spokeswoman for G4S said it was a strong believer in partnerships with customers and it fully supported NAO’s work.

The government said earlier this month that 10.5 percent of all government business went directly to small and medium-sized enterprises in 2012/13, up slightly from 10 percent in the previous year. It has a target of 25 percent for that figure by 2015.

Reporting By Christine Murray; editing by David Evans

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