The government has been told by MPs that it should pause the roll-out of payment-by-results contracts and other “innovative contractual models” until it understands the risks.
In a highly critical report on the collapse of Carillion, the Public Administrational and Constitutional Affairs Committee (PACAC) said that there were “long term failures” on the part of government when it came to commissioning services from the private and voluntary sectors, and that there was “a depressing inability of central government to learn from repeated mistakes”.
The report, entitled After Carillion: Public sector outsourcing and contracting, is critical of government’s failure to properly assess risk. The report said that government was driving down prices to the point that many contractors were no longer able to make a profit, and quoted sector leaders who reported that charities often took on government contracts at a loss.
PACAC said the government had failed to properly assess the risk to providers in both the Work Programme and Transforming Rehabilitation – two unsuccessful programmes in which voluntary sector bodies were subcontractors.
It said PbR contracts, because of the financial risk involved, were “more likely to stifle innovation than encourage it” and should be paused.
“The complexity of risk management is exacerbated in some of the innovative contractual models that the government has used recently,” the report said. “The government should pause its roll-out of these models, such as payment by results, given the difficulties the government has had in evaluating which activity leads to outcomes and working out costs.”