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G4S and the UK Government: Contracting Competence is the issue

July 12, 2013

It isn’t often that contract management hits the headlines on national news bulletins, but it was the main item on last night’s UK news.

The contract causing the furore is between the UK Government (Ministry of Justice) and outsourcing provider G4S. There are allegations of massive over-charging for services and even suggestions of possible fraud. One of the issues being highlighted is the lack of contract management skills within Government.

While welcoming the debate, I hope that it will result in meaningful analysis and not just knee-jerk reactions. It is true that Government (and most other trading entities) needs to improve the quality of its post-award contract management capabilities. But at heart, I believe the issue is not to throw money at the symptoms of the problem, but rather to address some of the front-end causes. The real challenge is to raise the standards of contracting competence and this depends on first realizing the need to think about contracting as a distinctive discipline, not simply a formulaic sub-element of Sales or Procurement.

It is early days, but the problems with the G4S contract sound to me relatively typical. In order to achieve ‘savings’, a commodity-based approach was adopted. This treated services as ‘units’ and payment was tied to the number of units handled in any given period. The problem was that no one had the capability to accurately measure the units. A competent commercial process should have addressed this as part of the negotiation, and designed the charging model accordingly, but either the deal-architects were ignorant of the problem or chose to ignore it (a frequent occurrence and one that I will return to in a future blog).

Good contracting is about aligning commitments with capabilities. It starts with proper assessment of requirements and continues with undertaking the right analysis of supplier capabilities and motivations. Current procurement practices are weak in both of these areas, in part because they remain predicated on a product-based, commodity mentality. Sales processes are equally weak because they generally lack the motivation to ensure that capabilities are in place. That means neither side asks or answers key questions up-front and contracts are signed with the wrong partners or using the wrong principles for gauging payment and performance.

When it comes to the suggestions of fraud, we will have to wait for further investigation. But we all know that incentive systems drive behaviour and if sales and business management are motivated to maximize revenue, that is what they will do. If a customer wants a supplier to operate with integrity, why don’t they select suppliers which offer balanced incentive schemes? Why don’t buyers ask their suppliers to explain the incentive systems they use and to demonstrate how these ensure integrity and honesty?

In the end, here is just one more example of a front-end contracting process that is not fit for purpose. For whatever reason, this one has hit the headlines. But as IACCM’s work on the ‘Return on Investment from Improved Contracting’ has shown, the problem is not unique to this contract. It is endemic to the way that organizations operate and will be fixed only when they put some focus on raising the quality of their contracting competence.

 

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