The government must look beyond bottom-line cost when it comes to awarding public contracts and embed procurement best practice across all departments in the wake of the Carillion collapse, MPs have concluded.
A report by the Public Accounts Committee found that the public sector procurement process has incentivised a focus on tendering and winning bids rather than ensuring the right supplier.
The report was prompted by the demise of Carillion, which MPs said was one of a small number of large companies convinced it was "too big to fail".
These companies "pursued new business with little apparent consideration of their ability to deliver the right service at the right price", the report said.
It also criticised the government for creating a "merry-go-round" procurement culture that encouraged a small number of companies to bid for contracts that they knew they would be unable to deliver for the right price.
And it warned that there was an attitude among some companies that money can be made from contract variance to boost income on a low-margin contract.
It urged the Cabinet Office to develop an approach to better examine the market and build intelligence on the motivations and intentions of companies bidding for central government work.
No excuse for late payment
And it warned that there was "no excuse" for small and medium supplier businesses not being paid on time, recommending a project bank account approach.
Among other recommendations, the report also urged the use of standard contracts.
And it called on the Cabinet Office to turn its proposed ‘playbook’ of guidelines, rules and principles for contracting into a set of mandatory requirements.
The Public Accounts Committee chair, Meg Hillier MP, said: "The collapse of Carillion in January sharpened our focus on the relationship between government and its strategic suppliers — companies that receive over £100m in annual revenue from Government contracts.
"This report, which follows our publication of government’s Carillion risk assessments and new evidence taken from government and strategic suppliers, makes important recommendations in this direction.
"In particular, we have identified a need for Government to be more assertive in shaping the markets in which it operates, with a renewed focus on driving value for taxpayers’ money.
"It must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs."
She added: "There must be clearer specification of contracts, properly scoped, so that when any deal is signed there is an agreed understanding between Government and supplier of what is being paid for, and over what timescale.
