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Parliament's Public Accounts Committee has said that Whitehall departments are not routinely checking value for money and applying financial penalties for poor performance.

In a report on central government's management of service contracts, the committee says that although most departments monitor the performance of IT suppliers, they make limited use of financial incentives to encourage good service.

"There is a risk that relationships between central government and its external suppliers are too cosy," said Edward Leigh, chair of the PAC. "It is a disturbing finding that, where services being supplied are sub-standard, nearly 40% of departmental contract managers choose not to apply financial penalties to the supplier – even though they are entitled to do so."

Planning and governance were found to be one of the weaker areas of contract management. For example, 41% of contract managers had not tested the value for money of new services purchased under an existing deal.

In 2007-08 Whitehall spent more than £12bn on service contracts, primarily on ICT, facilities management and business process outsourcing, and an estimated £240m on managing these contracts.

However, fewer than 50% of the organisations surveyed had someone with overall responsibility for contract management, and there was no plan for managing 28% of agreements.

Leigh said: "Central government pays out to external suppliers many billions of pounds each year for vital support services in such areas as IT and facilities management. But officials are more interested in the process of letting contracts than in managing them afterwards."

The committee calls for departments to assign responsibility for contract management to a single individual, to ensure that all major service contracts have performance measures and to undertake reviews of the resourcing of contract management across all major service deals.

The report points out that the Office of Government Commerce (OGC) has not so far provided proper contract management guidance. It adds, however, that during this year the OGC plans to address this problem by issuing new guidance and developing training on contract management. In addition, it will extend its monitoring of the government's major suppliers.

"Where an outsourced service fails, the effect on citizens can be serious. I will want to see the lessons which emerge from the Office of Government Commerce's review of two recent high profile examples: the respective delays in the marking of SATS tests and in the payment of Educational Maintenance Allowances," Leigh said.

An OGC spokesperson said that it is working to ensure that all its guidance provides clear advice on best practice contract management.

"All How to Buy guides have been updated to include contract management aspects, an agreed policy statement on contract management, incorporating the key NAO recommendations has been produced, and other supporting advice tailored at all levels has been produced and distributed across the public sector," he told GC News.

He also said that the Government Procurement Service plans to launch a cross-government Special Interest Group (SIG) from April 2009, to which major government departments and the National Audit Office are invited.

"The primary purpose of the SIG will be to manage a programme of work to implement the recommendations from the NAO reports," he said. "In particular, the SIG will look to improve the accessibility to and availability of fit for purpose learning and development opportunities for contract managers across government."

This article was originally published at Kablenet.

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