Was the Government too secretive over Brexit contracts? 4 lessons to consider when early contract termination is required
Byon November 20, 2019
In a recent PAC (Public Accounts Committee) report titled Brexit Consultancy Costs, the committee brought to light the government’s £97m spend on consultancy firms (up to April 2019).
It suggested this spend seemed to fail the government’s own standards in three important ways:
- too few of the contracts were being offered to SMEs as the government has suggested it aspires to do
- reports on the work the consultants were doing were taking far too long to be published, breaching the government’s own guidelines, and;
- when reports do eventually appear, they are often so redacted as to provide little useful information on what the government was spending these millions on.
From an observer’s (and interested citizen) perspective, the question is ‘what happens to all of the contracts that have been established for ‘no-deal’ preparations, in the event of a deal? Or deal preparations in the event of ‘no-deal’ and how can those contracts be terminated with minimal additional cost and headaches?
The introduction to the PAC report explains that these consultants have been used to plug the skills gaps and enhance capacities across many government departments in the lead up to Brexit.
However, in the report’s summary it states “Departments have been overly secretive about what the consultants are doing, as they have been before in providing information on other aspects of the Brexit preparations. When departments have published information on consultancy work, usually later than they should have, they have failed to meet the government’s own transparency standards. Departments took too long to publish information on the contracts being let, and some contracts were over-zealously redacted before publication.“
The report also criticises what it suggests is a loss of control on the part of The Cabinet Office for not standardising how various government departments define ‘consultancy work’. It seems some spending is slipping through the cracks, with it being classified as something else entirely on their category reporting.
The report recommends four measures are implemented:
1. Improved transparency
Government guidelines for publishing details of what various departments are doing on their EU Exit consultancy contracts is 90 days. However, some are yet to be published, some are taking as long as 237 days and the average of 119 days is something that PAC feels is not good enough. The report also takes issue with the fact that the published reports are too heavily redacted ‘despite a government expectation that contracts should be published in full’.
PACs recommendations were: “The Cabinet Office and the Department for Exiting the European Union should commit to making the government’s preparations for Brexit transparent; this should include making information on the degree of progress made against the various workstreams available and timely publication of details on contracts awarded to support Brexit.“
2. Too much talk and not enough action
While consultants were often utilised to consider the big picture questions of Brexit, the PAC report suggests that far too much of the consultancy support undertaken was to help with the thought process, rather than to move forward any practical delivery applications. They cited their last report in February 2018 on this matter which then highlighted the need for the Department for Exiting the European Union to move beyond mere planning.
PACs recommendations were: “In its Treasury Minute response to this report, the Cabinet Office should set out the extent to which departments are now using consultants to support implementation and delivery of preparations. It should also include a breakdown of how much has been spent as of July 2019 on Lot 1 (‘thinking and shaping’), Lot 2 (‘further shaping and moving towards delivering’) and Lot 3 (‘delivery’).“
3. Lack of competition
The report cites that 96% (by value) of all consultancy work has been awarded to just six major international consultancy firms and that this seems to fly in the face of the government’s aspirations to develop more competition in the market. The Cabinet Office itself has been reported as aspiring to level the playing field. Its stated intention was to help small to medium sized organisations in taking on more government contracts. This would help to break up the virtual monopoly some would suggest the major players in this market have been holding for far too long.
PACs recommendations were: “The Cabinet Office should write to us within three months setting out what it will do to incorporate a wider range of consultancy firms, including SMEs, in future frameworks.“
4. Spend discrepancies
The total spend on consultants at departmental and Cabinet office level seems to indicate an issue. The numbers just don’t add up. For example, the 2017-18 Cabinet Office figures say that £1.5bn was spent on consultants, but the total department level figure was £0.3bn. It is believed that this discrepancy is likely to be down to how different departments define consultancy work. This was supposed to be addressed in 2018, but it seems there is more work to do. Until then, it makes it very difficult to verify how spending on Brexit is broken down.
The PACs recommendations were: “The Cabinet Office must urgently address the increasing inconsistencies in the reporting of consultancy and professional services spending across government, ensuring that its own overall spend matches up with that reported by departments. In its Treasury Minute response to this report, the Cabinet Office should clearly set out the reasons for the discrepancies and the accurate figures. The Cabinet Office should work with departments to establish a shared definition of consultancy, ensuring that this is sufficient to exercise effective control over this area of expenditure.“
Planning for the multiple eventualities of something that may or may not ever happen, means that money will inevitably be considered wasted once the actual outcomes are determined. If we end up with ‘no deal’, (subject to whether any political party has a suitable majority post the election), the consultancy spend on deal preparation will be scrutinised and probably politically weaponised.
The same is likely to be true should a deal be agreed when it comes to ‘no deal’ preparations, and there is likely to be further fallout if Brexit does not go ahead. One thing that we do know is that some of these consultancy (and service delivery contracts) may well need to be terminated when their purpose is established to be null and void.
If something similar were to happen in your strategic relationships because of political or senior management uncertainty, how would you manage this eventuality?
Four Lessons to Achieving a Smoother Early Contract Termination
There are four-lessons we have learned through the hard-knocks of helping hundreds of clients to manage their complex major project relationships.
1. Look for answers in your contract
Hopefully, the contract you signed to bind you to your supplier for the length of the project is a clear and detailed document that provides for the eventuality of an early termination. Not all will do this, and unfortunately, this will inevitably lead to disagreements on whether, when and how a termination can occur, risking costs to budgets and reputations that could spiral.
Knowing your contract and whether it provides a roadmap to the smooth exit and transition of the relationship or not will put you in a far stronger position when you initiate a conversation on this matter. Know your rights, the costs and considerations highlighted in your contract, and enter into the negotiations for the end of your agreement with the goal of an amicable post contract relationship, top of your mind.
2. Look for reasons in execution
Not every contract is clear and not every professional services advisor is reasonable, particularly when these large consultancy firms have such stringent revenue targets to achieve. Therefore, it’s also important to go into that first termination meeting with a full arsenal of underlying interests, rather than taking a position, of why termination is likely to achieve the best option for all involved. This is not for first strike capability, but as backup in case a reasonable discussion descends into something less reasonable.
Throughout your relationship it would have been prudent to have kept a record of alignment, where your consultants have delivered on their promises and your expectations and when they have not. If their execution of duties and delivery have caused delays, if behaviour, attitude or lack of innovation have materially held things back, then these can all be reasons to cite as evidence that the relationship is not working.
If any of these activities or lack of activity are in breach of express or implied (i.e. undocumented) contractual obligations, then this can provide you with a stronger case for early termination.
3. Look for reasons in expectation
If you can evidence that you have clearly articulated your expectations – in what you’ve said and written down – for the project, and your consultants have gone off in a different direction, then there is justification for a termination discussion based on their not discharging their ‘expert responsibilities’.
This includes anything you have documented that was less than 100% clear. It should be noted that where your requirements and expectations were not clear to the consultants, as specialists in their field, recent case law dictates that they are usually under a ‘Duty to Warn’ you of any ambiguity and to test with you how those expectations need to be more clearly articulated.
If the consultants did expressly (in writing) warn you of any ambiguities (and the likely consequences on the project), but you decided to press ahead in any event, then they have a reasonable argument you were adequately warned and the appropriate costs of disengaging from the contract will be due.
However, if they did not expressly warn you and did not clearly explain the adverse consequences of the ambiguities, then it is likely you may have a good foundation to discuss sensible terms to bring the contract to an early end.
4. Look to the future
You want any termination discussions to be as amicable as possible because this is the fastest way to a smooth exit with everyone’s reputations intact. And just because you no longer wish them to work on this project with you, does not mean you won’t want their help at some point in the future.
Also, if the reason for early termination is circumstance-led it might be worth considering whether it would be possible to engage the same consultancy in a parallel project so they can be simply moved to another department which will oil the wheels of any project termination.
When the whole Brexit uncertainty is sorted out and it is time for many of these consultancy contracts to end, one would hope that there are some fairly simple and clear provisions in the agreements that were signed. It is also hoped that these contracts predicted this eventuality and will ensure a swift and smooth exit is possible.
No one can yet tell which way our exit from the EU will proceed, or indeed if it will proceed at all, should politics surprise us yet again in December. However, what is certain, is that post Brexit many of these contracts will be redundant and the incumbent government at that time will need to deal with this in a way that neither damages their reputation nor the public purse.
We can but hope that they have an eye on the four fundamental lessons highlighted above to help them through this process.
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