Is the strain of Brexit really behind excessive government contract extensions? 7 reasons to renegotiate your own agreement
Byon May 9, 2018
The government is under a great deal of strain at the moment; Brexit negotiations are ramping up, the local elections have just been held, and the latest controversy with Russia is reaching boiling point. So, it’s not surprising to have regularly seen and heard the political opposition accuse the government of taking its eye off whatever ‘other’ ball they wish to point at.
The one we’ve heard consistently reported on over the last year that interested us most of was the accusation that the civil service is so overwhelmed with Brexit considerations that millions of pounds are being wasted on automatic contract renewals on public sector projects. The argument is that these could have been renegotiated or put back out to tender for a better deal. But is this the case? And, even if it were, can the impacts be mitigated?
The Financial Times recently ran an article reporting that a government procurement advisor had advised them that over 250 contracts, many of them ‘huge’, were expiring, or close to expiring. The suggestion was that focus on them was low because “Brexit has pushed them down the list of priorities so there are lots of extensions and re-extensions of existing deals.”
It was suggested that this significant number of expiring contracts was due to the volume introduced in 1986 under Margaret Thatcher’s government with a ten-year term. These were reported to have been subsequently renewed/extended for a further ten years by Gordon Brown in 2007.
It was stated in the article that the civil service is under a great deal of strain. It further stated that because the NAO had reported a 26% cutback on civil servants over the last ten years, departmental budget cuts were beginning to bite. This would naturally result in shortcuts being taken – such as automatic extensions of contracts, as the simpler and short-term, more cost-effective solution. Further evidence was supplied in the report that the Crown Commercial Service had “extended 54 per cent of its contracts that were due to expire in 2015-16”, and that 50% of framework agreements were extended in the first four months of 2016-17.
The reality check
However, despite examples of contracts that had been extended and much theorising, there is little evidence to support the claim that the government is auto-responding to its renewal responsibilities.
Is it possible that some contracts have been extended simply because it’s easier, quicker and cheaper from a procurement perspective to do so? It’s possible, but no proof has been provided to suggest that the reason why 50% of public sector contracts with private sector suppliers have been renewed is anything other than because they were simply the best option available at the time. Is the logic being applied that ‘the best supplier is the one that’s already working on a contract’? Using this type of logic can determine that years of experience can count as a significant tick in the positive column.
Is auto-renewal such a bad thing?
Well, the simple answer is that it can be, but we should add a little context to that answer. With what has transpired in the external service delivery sector recently with the major troubles faced by Carillion, its many subcontractors, and others such as Interserve reportedly facing financial difficulty or additional scrutiny, it makes sense to pause and take stock.
Carillion’s situation sent shockwaves through the industry, making clients all the more cautious, increasing the likelihood of them choosing to maintain the status quo with their suppliers, even if they perceive they are not offering the best value service delivery; often they might think ‘better the devil you know’.
And, while this may be a perfectly natural leaning, given the current environment, ineffective service delivery must be stemmed; the government has a responsibility to take this opportunity to, at the very least, test each soon to be renewed major public sector contract for its cost-effectiveness, and where possible, realign and negotiate. After all, the public purse is only so deep.
We wrote an article at the end of last year titled ‘7 Reasons Why You Should Renegotiate Your Outsourcing Relationship’ which highlighted that around 75% of outsourcing relationships are usually renegotiated. There are many reasons behind renegotiation including poor service performance along with natural expiry, but there were other reasons too. These include:
1 – Some take the view that it’s often easier, cheaper and less risky than to say goodbye
Exiting a contract early is understood to be a costly undertaking that should be avoided where other options are available. What is sometimes forgotten due to the length of time that’s passed, is that the procurement process itself can also be costly and very time-consuming. To avoid this, you can often breathe new life into a flagging service delivery relationship by realigning both your own and your supplier’s business outcomes and objectives from the relationship.
Identify what areas require realignment and why, and how they can be improved upon. Issues can be identified and resolved and the relationship can proceed into a new term with renewed gusto and focus without the cost and risk of finding new suppliers.
2 – It can improve governance and communication
Many major public sector contracts (and private sector relationships) are carried out over many years; the only guarantee is that your objectives will change over that time. The relationship often evolves, staff leave, companies change their structures, egos can engage and oversight can slip. A realignment can be an opportunity to clarify business outcomes, lines of communication, hierarchies, roles and responsibilities. Ultimately this alone could improve relations, increase productivity, renew motivation for innovation, and steer the relationship away from potential opportunities for friction.
3 – It can help to boost vendor performance
Over time, especially when agreements extend over many years, what was once considered the height of efficiency often becomes stale and outdated. The requirements and contract terms that support them usually start to hold a relationship back.
The way individuals, departments and organisations work with one another, the technology utilised, and measures for rewarding good performance or realigning the efforts of those who are falling behind on expected standards, can all do with a regular review and refinement.
And performance can only be encouraged and maintained if your agreement keeps step with changes in the outside world and the realities of the relationship. Use this renegotiation to boost commercial trust and oil the wheels of innovation-led performance.
4 – It’s often a cost-cutting mechanism
Major service delivery contracts consume major budgets, so it’s easy to suggest, some time into a relationship, that there must be more cost-effective ways of doing things, that maybe you’re paying too much for the service you’re getting. Often this is wishful thinking, but there are certainly times when significant savings can be made as a result of a deep analysis into improved efficiencies.
Be careful to apply sensible balance to these renegotiations, as your supplier may well feel you are only trying to beat them down on price rather than looking for improved and/or best value. This is likely to impact on their commercial trust in you and their general motivation in your relationship. If you can approach these negotiations and this realignment from a position of mutual benefit, you are likely to build stronger bridges and make your savings/generate better value at the same time.
5 – It can reshape the agreement more effectively
We stated earlier that objectives change over time and so do the needs of the end recipients of the products and services you have contracted out. It is also a fact that as a relationship matures new opportunities for expansion of scope can be identified. A regular biannual review and refinement of your outcomes and objectives should allow for it to adapt to the needs of all parties, to reshape to better suit the end goals of the relationship, or to encompass new areas that can extend those goals to an even better place than was identified out the outset.
6 – It can serve to refocus after a major business change
Mergers and acquisitions, new management or corporate ethos, or any other major business change may put a relationship at odds. Just like all the other reasons identified above, a realignment negotiation can put a relationship back on track after time or circumstances have shifted the road from under it. Use this renegotiation to assess whether expected outcomes are still valid, if resources are being effectively utilised, and if the changes that initiated this renegotiation offer even greater untapped opportunities.
7 – It can make an agreement fairer and much better value all round
Many contracts contain ambiguities which often lead to confrontation, or one-sided clauses that could negatively impact the relationship. A realignment usually flushes these from the agreement to produce a fairer document that encourages collaboration and innovation, that rewards and offers clear avenues to resolution should issues occur. Clarity is the key to an effective agreement that will act as a true guide to the relationship. The alternative is discord, inefficiency and a missed opportunity for success.
There is no doubt that Brexit is a two-year-plus black hole of a project, sucking in resources, time and often our will to live! But, can this alone evidence that major service delivery contracts are being auto-renewed? Not really. The Government Chief Commercial Officer Gareth Rhys Williams responded to the FT in a letter stating that the article was “wrong to attribute government contract extensions to Brexit workload”; that “Government contracts are extended for a wide range of reasons” and that “considerable efforts and focus have been dedicated over the last couple of years to improving government’s commercial capacity and capability” to deal with the large number of soon to expire contracts, concluding “I can tell you categorically I am not aware of any government contract extensions that are due to ‘Brexit workload’.”