In spite of the Cabinet Office's tough talk about binning hefty suppliers whose performance is crappy, four outsourcing giants caught up in contractual issues have amassed £4bn of government business.
The fabulous four include Capita, Serco, G4S and Atos, which collectively banked £1.05bn in profits globally in 2012. Between them, they hauled in revenues of £4bn from the UK taxpayers' purse, but only two of them paid corporate tax, forking out just £81m to HMRC last calendar year, said the National Audit Office.
The government spends £187bn on good and services each year, the NAO estimated, with around half of this spent on outsourcing.
In a report (PDF) on government contracting, the public spending watchdog said the coalition had improved transparency and gained spending controls, but voiced concerns over the outsourcing giants.
"There is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly and of departments themselves not being on top of things," said Amyas Morse, head of the NAO.
Examples of contractual failings among the big four are well publicised: the G4S Olympic cockup; G4S and Serco for the phantom crim probe; Serco for prisonergate; Atos's work capability assessments; and Capita's court translation services project.
The Serious Fraud Office is investigating Serco and G4S after an audit cast doubt on their stats over electronics tagging of criminals and the MoJ is looking into Serco's prison escort claims, which led to the recent exit of its CEO.
"While some government departments have been admirably quick off the mark and transparent in investigating problems there is a clear need to reset the ground rules for both contractors and their departmental customers," said NAO's Morse.
In total, Atos holds £683m worth of government contracts, Capita has £1.076bn, G4S some £718m and Serco the largest at £1.824bn. Serco alone holds a £611m contract with the MoD and Atos holds the second-largest deal of the big four – a £303m gig with the MoJ.
Some of this work for central government is subcontracted to SMEs – accounting for £51m worth of work contracted out by Atos, £164m by Capita, £114m by G4S and £34m by Serco.
The NAO said contractors "volunteered" various level of detail about overall profitability, with Atos and G4S calculated to have paid no corporation tax while Capita coughed £56m and Serco some £25m.
Cabinet Office Minister Francis Maude has spent the last three years talking up the benefits of working with SMEs and cutting costs, to the point that some larger suppliers say they are getting itchy feet.
The NAO report wrote of the need to keep public sector contracts competitive but conceded there are benefits in working with larger suppliers including "economies of scale", "less likely to suffer corporate failure", and "financial resilience to absorb upfront costs".
However the transparency of the profits that large suppliers make from the public sector purse is "limited" as few firms split the top and bottom line numbers derived from government work. And they don't make making these available for "fear" of losing competitive advantage, said the NAO, adding it is difficult to assess the basis for the tax contractors pay.
"Even where transparency exists, it is inevitably difficult to interpret profit information. It can be unclear what a reasonable margin looks like. In theory, the margin is meant to reflect risk, innovation and investment. But these are difficult to measure," the NAO said.
Public Accounts Committee chair Margaret Hodge, who said she had asked the NAO to carry out the report, told The Guardian, "[I]t is the government's policy to outsource delivery of public services but what it cannot do is outsource responsibility."
In a statement, the Cabinet Office said: “We know that the Civil Service lacks commercial capability and that contract management needs to be improved.
"Our reform programme seeks to address this but we must accelerate change to save taxpayers more, create better quality public services and promote growth.” ®
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