March 7, 2014
The whole thorny issue of public sector procurement is never far from the news, but this week gained new prominence as one contractor walked out on a £1 billion contract because it felt the Ministry of Justice hadn’t grasped the idea of intellectual property amongst other things, while the Confederation of British Industry raised the stakes overall by claiming that a culture of secrecy in government purchasing continues to foster mistrust and waste taxpayers’ money. The CBI goes so far as to claim that even the most high profile botched contracts over recent years have not deterred the government from its move to inculcate a culture of opacity rather than transparency when procuring goods and services. It called on the Government to move to open book contracts so that all parties are aware of contract terms and margins.
Announcing a set of recommendations earlier in the week, CBI director general John Cridland said: “To improve transparency in outsourcing, the public services industry wants a presumption in favour of open book accounting. The government needs to do its part too as it often pushes for closed contracts, which should now become the exception, not the norm.”
The CBI claimed the potential both in terms of savings and other economic benefits was immense, especially given that the government spends around £187 billion with as many as 200,000 organisations. It also claimed that greater transparency would help the government to improve the reputation of its procurement function following monumental foul-ups such as the NHS patient record system which the public accounts committee reported last year had cost the taxpayer nearly £10bn, the West Coast railway franchise fiasco (£50 million) and the referrals of G4S and Serco to the Serious Fraud Office for overcharging on contracts.
Ruby McGregor Smith, chief executive of Mitie claimed in a Financial Times interview that the government was often reluctant to be more transparent, particularly on sensitive deals: “Quite often we get bashed over the head and want to put our side of the story but there’s a term in our contract that stops us from speaking. The more openly transparent we can be, the better in the long run.”
Open book methods aren’t the only challenge facing companies dealing with the public sector however. For example, a deal for the development of a revolutionary GPS tagging system for the Ministry of Justice has collapsed following a dispute over intellectual property rights.
A small Aylesbury based company called Buddi had won preferred bidder status for a large part of the £1bn contract last year in line with the government’s commitment to award more contracts to SMEs. This was such a high profile and valuable contract that it was seen as something of a test case for this commitment.
Buddi’s £300m share of the contract was to provide the bespoke hardware required for the tagging system. However, without a government guarantee that their technology wouldn’t be used by other companies, Buddi refused to give up intellectual property rights and walked away from the contract, calling their experience ‘unproductive and frustrating’.
In an email to employees, founder Sara Murray said that the MoJ wanted a product ‘that does not yet exist, remained unwilling to pay for any of development work, would not guarantee intellectual property rights, demanded prohibitively lengthy documentation and had already delayed the project so that it is now already 14 months behind schedule.
A spokesman from the MoJ said, ‘We have been unable to agree on certain technical and commercial aspects of the contract with Buddi to provide tags. We have therefore decided to re-compete this element of the contract to ensure we deliver an efficient service that represents best value for hardworking taxpayers while protecting the public. Though we are disappointed not to have reached a solution that meets our needs with Buddi on this contract, we remain open to working with them in the future.’