Companies win pledge on public procurement

Corporate Britain will not be frozen out of a reinvigorated public procurement market in favour of charities and social enterprises, the Big Society minister has promised.

Paul Pindar, chief executive of Capita, the back-office service provider, said Francis Maude, the Cabinet Office minister charged with promoting the Big Society project, had dismissed as “plain wrong” suggestions that the government would scale back plans to use for-profit providers in an attempt to boost Big Society providers.

“Behind closed doors, we’ve had frank conversations that have said ‘Yes, there is a role for these guys. But please don’t overstate their significance’,” he said.

He pointed to two “pan-government” contracts to handle travel administration, which the Office of Government Commerce quietly put out to tender on behalf of several government departments in April.

Worth a total £2.6bn over four years, they are among the UK government’s largest outsourcing deals.

“There is absolutely no way on the planet that that is going to be let to a charity,” said Mr Pindar, whose company derived about half its annual £2.74bn sales from the UK public sector last year. “And it can’t get let to a small or medium-sized enterprise.”

Public procurement has bounced back from a precipitous drop after the general election, according to research by Credit Suisse

Mr Maude insists that a mix of private sector, social enterprises and charities can deliver efficiency savings, while ensuring that public services are delivered by a wider range of providers.

But when the government announced its preferred providers for a £3bn to £5bn market in welfare-to-work programmes, only two of the 40 prime contract packages went to voluntary or not-for-profit operators.

Mr Maude’s aides said traditional outsourcing contracts would continue, although big services companies should look to work alongside other providers to help provide innovative solutions.

Nick Clegg, Liberal Democrat leader, has been locked in intensive negotiations with Mr Maude and Oliver Letwin, another Cabinet Office moderniser, over public service reform.

Although Mr Clegg has little or no ideological difficulty with a wider involvement of the private sector, he is wary about being accused of presiding over the privatisation of large swaths of the state. A white paper on the subject has been delayed, although Mr Pindar added that its contents were “almost academic”.

The travel administration and welfare-to-work tender notices were among more than 60,000 analysed by Credit Suisse, whose report sought to assess the potential level of future outsourcing.

The budgetary uncertainty prompted by the change in government resulted in a 20 per cent drop in contracts put out to tender by local authorities and central government departments after the election last May, compared with a year earlier. The research showed that procurement by public bodies has almost recovered to pre-election levels.

Credit Suisse said education and health bodies were issuing tenders at a faster rate than a year ago and demand had been rising fastest for transport and environmental-related services. The Credit Suisse research tracked the volume rather than value of tender notices. Analysts have warned that contractors’ margins are at risk as public bodies seek to cut costs.

Mr Pindar said: “I know for a fact that they [the Cabinet Office] have been trying to put some pressure on different government departments to start getting stuff moved out.

“I think what we’re now seeing is evidence that at least some of the people are actually listening and initiating tenders.”

Capita, which enforces payment of the television licence fee and runs the Criminal Records Bureau screening service, had in the past worked with charities, Mr Pindar added. But the sector “will not be a massive player” in the delivery of public services as they “simply don’t have the scale” and “can’t bear the risk” of things going wrong.

While the involvement of charities was “politically attractive” and “an appealing message” for the public, he said, “some of the talk about engaging [them] has been quite loose.”

Adrian Ringrose, chief executive of Interserve and chairman of the CBI public services strategy board, added: “There is a limit to what an SME or voluntary sector body can do if the name of the game is big, far-reaching, broad-based change.”

The Association of Chief Executives of Voluntary Organisations described Mr Pindar’s views as “old-fashioned” and said the voluntary sector did indeed have “the capacity to take on huge government contracts”.

Charities received £9.1bn in contracts and fees from the state sector last year, compared with £7.8bn in 2006-07.

By Alistair Gray, George Parker and Nicholas Timmins for The Financial Times

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