EFFICIENCY UNIT
VISION AND MISSION
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Vision Statement
To be the preferred consulting partner for all government bureaux and departments and to advance the
delivery of world-class public services to the people of Hong Kong.
Mission Statement
To provide strategic and implementable solutions to all our clients as they seek to deliver people-based
government services. We do this by combining our extensive understanding of policies, our specialised
knowledge and our broad contacts and linkages throughout the Government and the private sector.
In doing this, we join our clients in contributing to the advancement of the community while also
providing a fulfilling career for all members o our team.
This Brief was researched and authored by the Serco Institute, led by Gary L. Sturgess (www.serco.
com/institute). The Serco Institute was established 13 years ago to study the role that competition and
contracting can play in the provision of public services, and the conditions and practices that deliver the
best outcomes. It acts as a practical source of ideas and information, drawn from a continuing dialogue
with public official , think tanks and academic researchers. It also draws on the extensive operational
experience of Serco Group, embracing more than 600 contracts, in over 30 countries, with a history of
more than 40 years in the public sector.
Other Efficiency Unit Documents
The Efficiency Unit has produced a number of detailed guides including on outsourcing and Public
Private Partnerships (PPP). These may be found on the Efficiency Unit ebsite at www.eu.gov.hk.
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Foreword
Hong Kong has a long history of using the private sector to deliver public services. Elsewhere around
the world outsourcing is also a major trend in both private and public service delivery. Nevertheless, the
special concerns of our public service outsourcing, such as ensuring fair competition, providing speedy
responses to citizens' requests, and promoting labour welfare continue to provide outsourcing project
directors with fresh and demanding challenges.
Learning from past experience is one of the keys to future success. Through a story-telling approach
to international experience, this brief report highlights the acts and omissions during the design and
management of public service contracts that can lead to outsourcing contract failures. These are useful
lessons for our contract managers.
This report does not argue the rationale for engaging the private sector. This is already firmly established
public policy, and one that has a generally accepted rationale. The report does, however, demonstrate
that we are not alone in the challenges we face. By knowing and understanding the difficulties others
have faced we can avoid them ourselves.
Head, Efficiency Unit
January 2008
Competition and Contracting: Learning from Past Experience
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Contents
Page
Executive Summary
4
1. Introduction
6
2. Procurement Design
8
3. Managing the Procurement
14
4. Contract Design
18
5. Contractual Accountability
22
6. Contract Management
24
7. Market Design
28
8. Endnotes
31
Competition and Contracting: Learning from Past Experience
Page 4
Executive Summary
C
Procurement
Design
Procurement
officials and pr vate
sector bidders must
understand clearly
what is wanted from
the service or project in
question.
Managing the
Procurement
In the interest of
ensuring value-formoney, procurement
officials need to h ve
some understanding
of supplier capacity,
particularly where there
is not already a wellestablished market for
the asset, equipment or
service in question.
ontracting has been widely used by
governments over many years for the
purchase of goods and services from private
and voluntary providers. Overwhelmingly,
this policy has been a success. Very little
research has been done on the scale of the
public services industry, but a recent study
in the UK concluded that the sector is
three times the size of the pharmaceutical
industry. Against such a background, the
controversies over contractual failure seem
small.
contractual terms;
(d) C o n t r a c t u a l A c c o u n t a b i l i t y – by
which contractors are monitored
and motivated to deliver the desired
performance outcomes;
(e) Contract Management – concerned
with the ongoing contractual
relationship; and
(f) M a r ke t D e s i g n – t h e d e s i g n a n d
management of competitive markets
where there is a multiplicity of
contracts for similar services.
And yet, when contracts do stumble or
fail, they often attract significant public
attention, and these case studies provide
a fertile field for the study of best (and
worst) practice. Real world case studies
enable public officials to learn from past
experience.
In spite of decades of debate and discussion
over the conditions that are necessary
for successful competitive tendering,
procurement officials still sometimes fail
to obser ve the basics – clearly stating
desired performance outcomes in advance,
specifying them in a relatively small
number of relevant performance measures,
monitoring performance and intelligently
applying performance-linked rewards and
deductions as a way of ensuring that the
desired outcomes are delivered.
Across the English-speaking world, it is
traditional for government auditors to
investigate such failures and to study the
underlying causes. In this brief study,
we have turned to these audit reports to
understand how we might improve the
quality of competition and contracting.
This report is a summary of 49 different
reports, many of which were themselves
summaries of a multiplicity of studies,
which makes it difficult to summarise the
findings in the traditional way. However, we
have organised the lessons learnt under the
following key issues of outsourcing process:
(a) Procurement Design – the way in
which the procurement process is
structured;
(b) Managing the Procurement – how the
tendering process is actually conducted;
(c) Contract Design – seeks to align public
and private interests in defining the
Procurement Design: Procurement officials
and private sector bidders must understand
clearly what is wanted from the service or
project in question. In a number of case
studies, the contract was signed and delivery
was well underway before the scope of the
project was fully defined. Public sector
auditors have repeatedly warned about the
risks involved in undertaking complex and
large-scale contracts, recommending more
manageable projects wherever possible.
Managing the Procurement: In the interest
of ensuring value-for-money, procurement
officials need to have some understanding
of supplier capacity, particularly where there
is not already a well-established market for
the asset, equipment or service in question.
Competition and Contracting: Learning from Past Experience
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Executive Summary
In some cases, it may be necessary for
them to consult with potential providers
in order to ensure that there will be robust
competition (which may involve ensuring
that there is effective competition from
an in-house team). On the other hand,
officials need to avoid competitions that are
excessively focused on price at the expense
of quality, particularly where the service or
project is not well understood by potential
suppliers.
Contract Design: In designing the
contractual performance incentives, and
in defining the scope of the contractor's
authority, care must be taken to ensure
that private and public interests are
properly aligned. While this may seem an
obvious point, there have been a number
of controversial contracts where the
contractor was permitted to deliver services
to end-users in ways that were profoundly
inconsistent with government policy.
Contractual
Accountability:
The
monitoring
and
management
of
performance is one of the keys to successful
contracting, requiring the appointment and
retention of a sufficient number of
experienced officials. In the case of longterm contracts, it may not be sufficient to
rely on the original competition to ensure
value-for-money: ongoing benchmarking
against current market conditions may be
required.
Contract Management: In contracting for
complex performance, particularly where
core public services are involved, contract
managers must work in close partnership
with their private sector suppliers. In such
cases, it is not possible to outsource the
ultimate risk of failure to deliver, and public
offici ls must ensure that business risks are
Contract Design
understood and that strategies for mitigation
are in place. They must ensure that there is
appropriate governance of the partnership
on government's side, particularly where
multiple departments and agencies are
involved. But with complex and large-scale
projects, they must also pay some attention
to the governance of the contract on the
provider's side.
Market Design: Where government is
involved in the purchase of the same public
goods and services through a multiplicity
of contracts, rather than just undertaking
occasional procurements, attention may
need to be paid to the design of the market
itself. This may involve procurement
officials in studying the market, ensuring
that different public sector organisations
are not competing for scarce resources, and
assisting in building supplier capacity.
Infor med decisions need to be made
about the scale and scope of contracts –
if they are too large, they will weaken the
competition and undermine the incentive
of companies to invest in the market for
the long term. On the other hand, they have
to be large enough to justify investment
in bidding. Bidders will also want to be
reassured that competition is fair between
public and independent providers.
Finally, greater attention must be paid to
capturing and communicating the lessons
that have been learned from past mistakes.
It is evident that the promulgation of
formal guidelines is not always sufficient.
Story-telling – drawing upon case studies of
past contractual failure – may be one of the
ways that we can make these lessons more
memorable.
Competition and Contracting: Learning from Past Experience
In designing
the contractual
performance incentives,
and in defining
the scope of the
contractor's authority,
care must be taken to
ensure that private and
public interests are
properly aligned.
Contractual
Accountability
The monitoring and
management of
performance is one of
the keys to successful
contracting, requiring
the appointment and
retention of a sufficient
number of experienced
officials.
Contract
Management
In contracting for
complex performance,
particularly where
core public services
are involved, contract
managers must work
in close partnership
with their private sector
suppliers.
Market Design
Where government is
involved in the purchase
of the same public
goods and services
through a multiplicity
of contracts,
rather than just
undertaking occasional
procurements, attention
may need to be paid
to the design of the
market itself.
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1. Introduction
'It is useful to erect beacons upon rocks whose existence has been made known by the shipwrecks they have caused.' –
Jeremy Bentham, 1830
G
overnments use competition and contracting to
procure a wide range of goods and services, and
they have done, more or less often, over hundreds of
years. Overwhelmingly, this policy has been a success
– the scale of public sector contracting and the
relative infrequency of controversy (given the scale
of activity) suggests that competition and contracting
work well most of the time.
It has been claimed that John Glenn, America's
pioneering astronaut, once observed: 'As I hurtled
through space, one thought kept crossing my
mind: Every part of this capsule was supplied
by the lowest bidder'. This wry (and apparently
apocryphal) statement reminds us of the crucial
role that contractors have sometimes played in the
delivery of public services1. And given the logistical
and technological complexity involved in eventually
putting a man on the moon, and the part played
by a variety of different contractors in the success
of that endeavour, it seems reasonable to conclude
that National Aeronautics and Space Administration
(NASA) and its private sector partners did an
outstanding job.
But this anecdote also reminds us that competition
and contracting have not always been done well.
When shipwrecks do occur, there is often a major
controversy, and inquiries are established to uncover
the rocks upon which the project foundered.
Invariably, some attempt is made to erect beacons
upon those rocks – fl ws will be exposed, underlying
causes identified, and recommendations made for the
improvement of contractual processes.
And yet in reading many of the audits, reviews and
inquiries that have been conducted over the years, one
is struck by how often the same recommendations
have been repeated. For some reason, the lessons
aren't effectively communicated and learned: a report
by the US Government Accountability Office (GAO)
published in December 2006 reported that after years
of warnings, the Department of Defense (DoD)
still did not systematically ensure that institutional
knowledge gained from prior experience was collected
and shared2.
This is not a new problem. After a detailed study
of British naval contracting in the late 18th and
early 19th centuries, one historian observed that
the improvements recommended by successive
commissions of inquiry had not been long
remembered: 'The problems with which they dealt
were not however peculiar to the period. The reports
would be forgotten, and similar mistakes would be
made by future generations, and the same lesson
would have to be re-learnt.'3
This brief report brings together some of the best
known examples of contracting controversies across
the English-speaking world over the past two or three
decades, based on some 49 different studies, some of
which were themselves summaries of a multiplicity
of other studies. We have drawn from the AngloAmerican jurisdictions, partly because they have been
more active in the use of competition and contracting,
and partly because of the public availability of audit
reports. This report summarises the key lessons from
those experiences which would be illustrated under
the six major issues of outsourcing in the following
chapters.
It is not a comprehensive handbook on effective
competition and contracting. Rather, it looks to the
controversies of the past and identifies some of the
lessons that were drawn at the time. In this sense, this
report is like a mariner's map that plots the location
of hidden shoals and identifies some of the beacons
Competition and Contracting: Learning from Past Experience
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1. Introduction
that can be used by future travellers.
Story-telling is one of the ways that we can make
these lessons more memorable, and by paying closer
attention to these 'exemplary failures', the lessons
of the past can be communicated more effectively
to future generations of procurement officers and
contract managers. It is not enough for governments
to publish regulations and guidance notes – by
working with real-world case studies, contracting
officers can better understand why it is wise to adopt
particular policies and practices.
Competition and Contracting: Learning from Past Experience
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2. Procurement Design
T
he success of government contracting is heavily
influenced by the way in which the services
are originally procured. If government has failed
to understand or specify its requirements, if it has
selected the wrong partner, or if it has contracted at a
price that is not commercially sustainable, then it will
be difficult to ensure that the contract succeeds over
the course of its life. Procurement matters because
contractual management depends so much on the
decisions made at the outset during specification,
competition and negotiation.
Procurement officials must be honest and capable,
but that is not enough; the design of the procurement
rules also matter. For example, the timing and
sequencing of procurements may influence the quality
of competition. Poorly constructed prequalification
and evaluation criteria may favour larger firms
or incumbent providers. Commissioners need to
be reassured about the capabilities of potential
contractors, but excessive reliance on prior experience
may tend to exclude new entrants4.
Those charged with procuring public services from
private and voluntary sector providers must do more
than just follow the rules – they must have regard to
the broader environment within which procurement
is taking place.
The Winner's Curse
Economists argue that under certain kinds of
tendering conditions, the winning bidder will always
pay an excessive price, resulting in the contract
being an unhappy experience for both customer and
contractor. In these situations, the winner always
loses, a predicament that has become known as 'the
winner's curse'.
Melbourne Trams and Trains
In December 1998, the state government in
Victoria, Australia, awarded franchises to three
private fi ms for the management of its trams and
trains. The handover occurred in August of the
following year. The government estimated at the
time that over the life of the fi e-year franchises, it
would save A$1.8 billion, with increased patronage
and service levels.
From an operational perspective, the franchises
have been a success. But in December 2002, the
leading operator walked away from the franchise,
having suffered financial losses of almost A$300
million, and forfeited performance bonds of some
A$130 million. Industry experts have concluded
that this very experienced international transport
operator misunderstood the required level of
capital investment and that its bid team made
unrealistic assessments of the patronage levels that
could be achieved. Policy analysts have concluded
that the procurement officials generated 'bid fever',
resulting in a winner's curse5.
The winner's curse arises where price is the deciding
factor in the bid, and where competing firms have
very different understandings of the service in
question. It is made worse where the procurement
team deliberately constructs the rules of competition
to increase the competitive tension. The solution
lies in communicating effectively with bidders and in
avoiding aggressive price-based competition where the
sources of value from the procurement are not clear
to the market.
Central vs Local Control
Striking the right balance between the autonomy of
service managers and coordination at the centre of
government is a difficult challenge. In the case of
Competition and Contracting: Learning from Past Experience
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2. Procurement Design
competition and contracting, there are sometimes
economy-of-scale arguments for central purchasing.
For understandable reasons, line managers are
sometimes reluctant to have their services exposed to
competition, so that without central policy direction,
outsourcing can be overlooked as a tool of reform.
And in some cases, markets need to be designed and
managed at a regional or national level to ensure that
they are sustainable.
On the other hand, if decisions are over-centralised,
services can become bureaucratised and unresponsive
to individual concerns and local conditions. Front-line
service managers spend their time complying with
rules that contribute little to delivering better services
to end-users, losing the flexibility they need to adapt
to the changing environment.
Australia's Whole-Of-Government IT
Outsourcing
In 1997, the Australian federal government
announced that over the next two years, it would
outsource IT support across the whole of the
public sector. Savings of up to A$1 billion
were forecast, and the Department of Finance
announced a programme of budget cuts for
departments to reflect the anticipated efficiencies.
In the interest of capturing economies of scale,
government departments and agencies were
grouped together into clusters, and their IT services
were outsourced in packages.
A report by the Auditor-General in 2000 found
that the ambitious timetable had slipped, and
procurement costs had blown out. There had
been protracted opposition from departments
and agencies who argued that a 'one-size-fits-all'
approach failed to take account of their particular
needs. The programme remained controversial,
with the media regularly reporting departmental
opposition and difficulties in implementation, and
by 2001, it was being described in national papers
as 'the federal government IT outsourcing fiasco 6.
A further report was commissioned by the
Minister for Finance, which concluded that using
one prime contractor for a number of different
agencies could not address 'the complex multitude
of implementation risks, unless an organisation is
presented with an extremely stable and predictable
future'. Insufficient attention had been paid to the
details of individual agencies' businesses: 'Priority
has been given to executing outsourced contracts
without adequate regard to the highly sensitive
risks and complex processes of transition and the
ongoing management of the outsourced business
arrangement.'
And without adequate consultation, a centrally
driven approach resulted in 'a general lack of buyin by senior management', a factor that was widely
recognised as crucial to successful management of
large IT projects7.
In some cases, there is no alternative to central policy
direction and a coordinated approach. The Australian
studies suggested that one way of addressing the lack
of procurement and project management expertise at
agency level was to establish a central agency capable
of providing support in managing transition and
undertaking outsourcing. They suggested that wholeof-government outcomes might be pursued through
performance agreements with agency heads rather
than mandating specific solutions from the top of
government.
Understanding Clearly What Is Wanted
One of the most consistent themes to emerge
from the many reviews of failed procurement is the
importance of adequate planning and analysis. In
Competition and Contracting: Learning from Past Experience
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2. Procurement Design
some of the more notorious examples, particularly
in contracts for IT support, failure was built into the
project from the very beginning because the customer
and contractor were not clear about the desired
outcome.
Canada's Federal Gun Registry
In 1995, the Canadian government introduced new
firearms legislation requiring all 2.5 million gunowners to be licensed and all 8 million firearms
in the country to be registered. The Department
of Justice advised parliament that the programme
would cost C$119 million, with a net cost (after
accounting for revenues) of only C$2 million. By
2000, the Department estimated that the total
cost would be in excess of C$1 billion. When the
Auditor-General investigated the programme in
2002, the audit was suspended due to the lack of
reliable information about the true cost.
Implementation of the programme has been
controversial for reasons other than this: allegations
were made of impropriety in the procurement of
key contracts, highly-sensitive information was
mistakenly dumped in public, and licenses were
issued with the wrong names and photographs.
Responsibility for the programme passed through
three separate departments.
To a considerable extent, the firearms registry
was delivered through contract. An investigation
by the Auditor-General in 2006 looked at the
arrangements governing 3,642 contracts let
between 1997 and 2005, revealing that government
regulations mandating competition had been
repeatedly overlooked. In 2006, the Standing
Committee on Public Accounts wrote: 'There is
sufficient evidence to conclude that there was a
purposeful circumvention of contracting policies
and regulations.'
More than two-thirds of the value of these
contracts was tied up in two agreements for
developing the information system to support the
registry. The first of these contracts took longer
to complete than planned, and the cost was more
than twice the original estimate. The AuditorGeneral concluded that this was because project
requirements were not well defined, and the
passage of the enabling legislation was delayed by
more than two years.
In 2001, the Department of Justice reported that
the information system was not working well since
complexity had increased due to invalid design
assumptions. The government approved a redesign
of the system, and a second contract was let. When
the Auditor-General looked at this contract in
2006, it found that it was more than two years late
and the costs were almost three times over budget.
The Auditor-General subsequently reported that
the Department had recognised that the budget
for this second contract was insufficient to deliver
the system's capabilities, and the timeline was too
short to complete the project, but steps were not
taken to mitigate these risks. Costs had increased
in part because the contractor did not receive the
user specifications until after receiving the letter
of intent announcing it as the successful bidder,
and work commenced before the formal contract
was signed. Indeed, work on the second system
commenced before the legislative and regulatory
amendments had been completed, resulting in even
more changes to the scope of the project8.
A recent report by the Canadian Auditor-General
has argued that most IT projects involve some
element of business change. Where such projects
cross organisational boundaries, then the nature
of the business change can be extremely complex.
The Auditor-General advised that at the start of a
major project, agencies should demonstrate that they
Competition and Contracting: Learning from Past Experience
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2. Procurement Design
understand and are prepared to accept the associated
business transformation9.
Dolphins Not Whales
One study, published as early as 1997, identified
as one of the principal causes of failure in the
implementation of new IT systems is the tendency to
be overambitious. And a 2001 report on e-government
by the Organisation for Economic Cooperation and
Development (OECD) warned that public sector
budgeting and political needs tend to encourage
the production of 'whales' – projects that are
'large, expensive and spectacular' – in preference to
'dolphins' – smaller and more manageable projects.
In 2006, a Canadian report observed that in spite of
repeated warnings, a bias towards large IT projects
continued and warned of the need for strong
governance10.
New Zealand's National Crime Investigation
System
When the New Zealand Cabinet approved the
Integrated National Crime Investigation System
(INCIS) in 1994, the police ser vice already
had a twelve-year history of struggling with
the implementation of major new IT systems.
INCIS was to provide criminal information, case
management and intelligence analysis for the police,
and it was expected to free up 1.9 million hours of
police time, and save more than NZ$14 million on
the systems then being used. A contract was signed
with a major IT multinational, at a cost of NZ$204
million.
By mid-1999, the project was significantly over-time
and over-budget, and the contractor announced
that it was not prepared to proceed without
further payment. The government responded that
the supplier was expected to fulfil the existing
agreement, and the company repudiated the
contract, insisting that the customer's requirements
had changed since contract signature. The
Attorney-General launched a legal action and the
contractor submitted a counter-claim: the case was
later settled out of court.
A subsequent ministerial inquiry reported that the
reasons why the INCIS project did not achieve
its objectives were 'numerous, interrelated and
complex', and they were not unique to the police.
'No single cause resulted in the failure but the
combined effect of these causes significantly
increased the potential for the project to fail.'
Key among the conclusions was a finding that:
'Police looked extensively for existing suitable
packages but were unable to find anything that met
the INCIS specification. This in itself should have
been a warning of the complexity and magnitude
of the problem.' In spite of public assurances that
the police wanted to use tested technology, by the
time of the Request for Tender, the specifications
demanded the use of emerging technologies that
were mostly unproven in a project of such scale
and complexity.
The supplier had warned prior to contract that it
was impossible to deliver the technology specified,
but the police believed that the supplier's scale and
its extensive resources would enable it to overcome
any difficulties with new te hnologies11.
After reviewing 25 cases where the implementation of
IT systems had resulted in delay, the Public Accounts
Committee (PAC) of the UK House of Commons
concluded:
Competition and Contracting: Learning from Past Experience
"The scale and complexity of projects is a
major influence on whether they succeed or not.
Departments should consider carefully whether
projects are too ambitious to undertake in one
go"12.
Page 12
2. Procurement Design
Sometimes governments have no alternative to
designing and procuring an entirely new system
through a single contract, but numerous case studies
remind us that the larger and more complex the
project, the greater the chance of failure. The OECD
recommended that government agencies design
smaller projects that are capable of being scaled up as
they learn from the outcomes of previous projects.
Optimism Bias
It is now widely recognised that those involved in
developing the business case for large and complex
projects are inclined to overestimate the benefits and
underestimate the risks, a phenomenon that has come
to be known as 'optimism bias'. And yet in spite of
an extensive literature warning about this risk, public
officials responsible for the procurement of complex
projects and services continue to make this mistake.
Fast Ferries in British Columbia
In 1994, the provincial government of British
Columbia in Canada, announced a programme to
commission three catamaran-style high-speed ferries
over a three-year period. A budget of C$230 million
was approved and the relevant public authority, BC
Ferries, created a subsidiary to manage the project.
The last of the three vessels was not completed
until August 2000, almost three years late, and
the cost had more than doubled. Moreover, the
completed ferries were unsuitable in terms of
travel time, carrying capacity and operating costs,
and it emerged that they caused environment and
property damage along the shoreline as they passed.
The ferries were sold in 2003 for a fraction of their
cost.
Inquiries by the Auditor-General and the PAC
found that there had been breakdowns in the
governance and management of the project – the
decision to build the ferries was not supported by
information to demonstrate that they would meet
the community's needs in a cost-effective way, and
an unrealistic timetable led to a rushed process.
The Auditor-General reported that: '. . . the
proposal presented to cabinet did not identify
that the cost estimate included was optimistic
(the risk of not meeting it was high), and that a
slight increase in capital or operating costs would
make fast ferries financially less attractive than
conventional ferries.'
Public commitment by the government to a threeyear timetable had meant that important steps in
design and construction were rushed. Construction
began before drawings were sufficiently complete,
and before contracts had been agreed with the
shipbuilders. Major changes were made to the scope
of the project without review of the implications
for the costs and schedule13.
The risks associated with the design, construction
and operation of large and complex projects must be
identified up front, and the potential impact on costs
and schedules realistically assessed. After reviewing
the fast ferries case study, the Auditor-General
concluded that good project management should
include a disciplined evaluation process for new
capital projects of financial significanc , including the
development of a rigorously prepared business case.
Understanding the Stakeholders'
Experience
Sydney's Cross-City Tunnel
In February 2003, an international consortium was
announced as the builder and operator of Sydney's
Competition and Contracting: Learning from Past Experience
Page 13
2. Procurement Design
cross-city tunnel, a public-private partnership (PPP)
that was to take traffic under the central business
district. During the tendering process, competition
had focused around an upfront capital charge that
the operator would pay to the government for the
right to operate the franchise.
The 30-year contract was worth more than A$1
billion, and the tunnel opened in August 2005. In
early 2007, the PPP went into receivership, and in
June it was sold to a new consortium for A$700
million, with the original operators having lost
around A$560 million.
There was a public outcry surrounding the opening
of the new tunnel, principally because of road
closures and traffic forcing measures that were
built into the design. It is probable that identical
measures would have been used if the government
had designed and built, owned and operated the
tunnel. But there was a widespread belief in Sydney
that the traffic changes had been necessary to
support the upfront payment to government, and
that a 30-year contract had made rectification of
the mistakes virtually impossible.
Two subsequent investigations concluded that there
had been inadequate community consultation, so
that the impact on local road users was poorly
understood14.
Another lesson that surfaces throughout the literature
is the importance of understanding the way in which
services will be used by end-users and delivered by
staff, and how the project will impact on the wider
community. This is particularly important in public
service contracting where reforms are potentially
more disruptive than in-house initiatives, and where
the formality of a legal contract means that the
implications must be considered carefully in advance.
The UK's Criminal Records Bureau
In 2002, the UK government introduced a new
certification system to scrutinise the background
of individuals working with children and vulnerable
adults. Employers were required to undertake
background checks on prospective employees
through a new Criminal Records Bureau.
The Bureau was formed as a PPP: the private
partner operated the call centre, maintained the IT
infrastructure, collected fees and issued disclosures,
while public officials accessed the police national
database and managed relations with policing
forces and agencies. On going live, the new system
immediately ran into difficulties, as the Bureau
found itself unable to respond to applications
in a timely way. While the system shortfalls were
addressed in a matter of weeks, there was a public
controversy and when it reviewed the experience,
the National Audit Office (NAO) identified some
important lessons.
Perhaps the most important shortfall lay in the
failure to anticipate how the public would use the
new system. It had been assumed that applications
would come from individuals; employers tended to
send them in batches, which required a different
kind of relationship with end-users. It had also
been assumed that more than 70% of applications
would come by phone; in practice, more than 80%
were submitted on paper.
Some of these issues had been uncovered during
consultations with end-users in the months prior
to launch. The contractor adapted to take account
of these demands, but the system had not been
designed to cope with so many paper forms, and
staff were not appropriately skilled. Once the
problems were identified, they were resolved within
a period of some eight weeks15.
Competition and Contracting: Learning from Past Experience
Page 14
3. Managing the Procurement
C
ompetitive tendering has long been used by
governments for the procurement of goods and
services from external suppliers, although it seems
that some of the most basic lessons, such as the need
to maintain competitive tension among suppliers,
and the dangers of using competition to drive down
price at the expense of quality, have still not been fully
grasped.
Using Competition
For most public services, it is competition that
delivers value-for-money, rather than private sector
delivery. In one of the earliest studies of public
service contracting, Harvard academic John D.
Donahue concluded: 'Public versus private matters,
but competitive versus non-competitive usually
matters more.'16
Competition regulators recognise that restricted
competition and sole source contracting are
sometimes necessary where a national emergency
demands immediate action, or where the complexity
of the requirement means that procurement costs are
high and there are few competent suppliers17. But
great care needs to be exercised when competitive
tendering is not employed – public confidence in
contracting for public services is heavily contingent on
the existence of transparent competition processes.
US Federal Procurement
The US federal government has long placed
contracting at the heart of public sector reform,
and yet it has continued to struggle to maintain
competitive pressure. The very first governmentwide policy on contracting in 1949, specified that
there should be 'competition in the marketplace
whenever practicable'. From 1972 when the first
national procurement guidelines were published,
formal advertising with contract award based on
price competition was the norm. And yet the
proportion of contracting dollars awarded on a
competitive basis continued to fall throughout the
1970s and early 1980s.
In 1983, Congress and the media exposed a
succession of contracting scandals caused
by inadequate competition and the following
year, the Competition in Contracting Act was
passed, mandating competition with only limited
exceptions. However, this approach resulted in
federal procurements becoming mired in red tape
– the Federal Acquisition Regulations extended to
some 2,000 pages – and in 1988, it was reported
that government officials had still 'improperly
steered contracts to preferred contractors'.
Throughout the 1990s, federal procurement
processes were reformed, but with the vast increase
in the use of contracting in defence, homeland
security and emergency management (where
there is often the need for rapid response to crisis
situations), sole-source contracting has once again
become commonplace. Whereas 33% of federal
contract spending was awarded without full and
open competition in the year 2000, by 2005, this
figure had risen to 38 18.
A 2006 study by the GAO reported that out of 57
contracts for guard services at Army installations,
46 had been awarded without competition 19 .
A congressional report on waste and fraud in
contracting during the aftermath of Hurricane
Katrina (which hit New Orleans in August 2005)
found that, as of 30 June 2006, less than one-third
of contracts had been awarded with full and open
competition. As late as December of that year, the
Federal Emergency Management Agency was still
awarding well over half of its contracts (by value)
without full competition20.
Competition and Contracting: Learning from Past Experience
Page 15
3. Managing the Procurement
Building Competition
Where competition is weak, with few bidders,
procurement officials need to exercise great care
to ensure that that they deliver value-for-money
for taxpayers. In such situations, the in-house bid
or the public sector comparator – the cost of the
public sector delivering the same service – will serve
as a benchmark against which to assess market
competitiveness.
Kentucky's Otter Creek Correctional Facility
The tender for a 400-bed female prison at Otter
Creek in Kentucky closed in June 2005, with only
one bidder. Under state law, successful tenders had
to be at least 10% less than the cost to the public
sector of delivering the same facility. The tender
documentation had disclosed the public sector's
cost comparator, and unsurprisingly, the final bid
was 10% below the comparator, less a small amount
for overheads.
However, the State Auditor later found that the
department had underestimated the costs for
monitoring and administration, and when a more
reasonable estimate for overheads was included,
the Otter Creek bid was only 7.5% less than the
comparator21.
Where officials find that they are dealing with a
single bidder, questions need to be asked about the
deliverability of the project, given current market
interest and capacity.
New IT Systems for UK Magistrates' Courts
In 1998, following two failed IT projects going back
more than five years, the Lord Chancellor's
Department signed a PPP with a national supplier
to develop a standard IT system for some 380
magistrates courts nationwide. The contract
encountered difficulties early in its life, and was
renegotiated twice: on the first occasion because
the contractor had overestimated the revenues
and underestimated the costs, and on the second
occasion, after delays in implementation caused
costs to escalate.
By mid-2001, the supplier was unable to deliver
the core application at the first site, and it
claimed that it would incur massive losses on the
project. The contract was renegotiated yet again,
significantly reducing the requirements and delaying
implementation. It has been estimated that the final
costs were more than twice the original contract
price.
When the contract was scrutinised by the NAO,
a number of issues were identified. Following
earlier contract failures, the competition was
initially confined to two firms, and in the course
of the tender, one of these two bidders, a major
IT company, withdrew, leaving a sole-source
procurement. The remaining bidder was at that time
in serious difficulty with another major government
IT contract (which was later cancelled for nonperformance)22.
It is usually not enough for government agencies to
issue a Request for Proposals and wait to see who
submits a response. In order to ensure sufficient
competition, it is often necessary to survey the market
to establish the level of market interest and to ensure
that the project is structured in a way that will be
attractive to suppliers. In some cases, it may involve
early engagement with potential suppliers to inform
them of the opportunities and to ascertain their needs
and priorities.
Competition and Contracting: Learning from Past Experience
Page 16
3. Managing the Procurement
Price-Based Tenders
In the UK, the Office of Fair Trading (a competition
regulator) has argued that: 'Even where a contract is
not awarded explicitly on the basis of lowest price,
bidders will form expectations about the relative
weight given to price compared to other criteria.
[Clients] can influence these expectations by being
more explicit about how they weight different
selection criteria.'23
Where bidding success is largely determined by the
willingness to assume demand risk, in effect, this will
operate very much like price-based tender, and the
project may suffer from the same failing. For reasons
that are not entirely clear, franchises for the delivery
of public transportation services seem particularly
vulnerable to this flaw. Successive studies over many
years have pointed to optimism bias on the part of
bidders in relation to traffic risk in transportation
projects. This phenomenon has been documented in
relation to tollroads, bridge and tunnel projects, and
urban transit24.
Sydney's Cross-City Tunnel
The successful consortium for this high-profile
tollroad had overestimated patronage by some 200%
(yet another example of the winner's curse). Tolls
were widely regarded by the public in Sydney as
having been set too high, and it was concluded that
this had been caused in part by the government's
decision to base the competitive tension around an
upfront payment from bidders to government.
Project Drift
It is not unusual for the client's requirements to
change over the course of the procurement as shifts
take place in the wider political, economic and policy
environment, and as unanticipated issues come to
light. The UK PAC issued this warning about project
management: 'what seems a clear objective at the
beginning can easily become blurred and confused as
events progress'25.
Similar difficulties can emerge in the management
of public services, where the client's demands or the
wider political and policy context changes without
adjustment to the underlying contract.
In many cases, these problems can be avoided through
careful planning, but with complex and long-term
contracts, this is not always possible. Regardless of
the cause, the financial costs of project drift can be
considerable and the success of the entire service or
project can be compromised.
Yarl's Wood Detention Centre
The new immigration detention centre at Yarl's
Wood in England was finally opened in January
2002, almost a year late. The original procurement
timetable had planned for bidders to be briefed in
late May 2000, with short-listing in early June and
contract award at the end of the month. Work was
to start on-site in early July and the centre was to be
fully operational by April 2001. Some ten months
after the facility became fully operational, there was
a riot among the detainees, and a fire destroyed a
large part of the complex.
According to a later review by the Prison
Ombudsman, this timetable was undeliverable, and
bidders progressively dropped out, finally leaving
only one bidder remaining. The government's
advisers warned that the timetable was not
achievable, and a subsequent review concluded,
'the speed with which things started to go wrong
suggests it was at best over-ambitious and at worst
wholly ill-conceived'26.
Competition and Contracting: Learning from Past Experience
Page 17
3. Managing the Procurement
One of the consequences of accelerated delivery
was a decision to construct the facility out of wood
rather than concrete, and some of the interior
walls were described as flimsy. If the facility had
been used as originally intended, this might not
have mattered, but shortly after opening, a decision
was made to transfer in detainees with a criminal
background, some of whom had been involved
in disturbances at previous centres. The Prison
Ombudsman later concluded that the change
was implemented too quickly, with a lack of
discrimination and with insufficient attention to the
likely consequences.
Some claimed that this shift occurred as the result
of a sudden change in policy, driven by a political
timetable designed to relieve pressure on the
prisons. The Prison Ombudsman concluded that
while the shift in policy had not been driven by
Ministers, officials may well have misconstrued their
intentions27.
The use of fi ed-price contracts involving signific nt
risk transfer (such as those typically used in PPPs)
has sometimes helped to focus the parties' attention
on such questions up front. On the other hand, the
legal formality of contractual arrangements involving
significant risk transfer may make contractual refresh
to take account of environmental change more
difficult.
in November 2007 by the PAC of the House of
Commons concluded that 'One-third of procuring
authorities admit that they have insufficient resources
or in-house expertise for part or all of the. . .
tendering process [for PPPs].'
The same week, a report by the Audit Commission on
competition and contestability in local public services
reported that 'councils generally lack sufficient people
with the procurement, risk or contract management
skills to make effective use of market mechanisms'28.
In the US, a succession of reports has commented
on the lack of qualified programme managers,
most notably in the Departments of Defense and
Homeland Security29.
New Zealand's National Crime Investigation
System
The factual details of this failed IT project have
been outlined on Page 11. One of the many reasons
for failure was the refusal to appoint an experienced
project manager to oversee this large, complex and
unique contract. The police department had insisted
that a sworn police office be chosen as Project
Director, and in spite of strong policing credentials,
he lacked experience in managing such a complex
project. Moreover, his place in the command-line
culture in policing made open and frank reporting
of emerging problems difficul 30.
Many of the inquiries into failed and challenged
contracts have addressed this question. The solutions
lie in strong governance and management frameworks
– clear ownership, good communication and periodic
review.
Contracting Capabilities
Perhaps the most common of findings in contracting
reviews is a lack of capability on the part of
procurement officers. In the UK, a report published
Competition and Contracting: Learning from Past Experience
Page 18
4. Contract Design
A
successful partnership for the management
of complex public services depends on much
more than a well-designed contract. However, since
the contract is a legally enforceable arrangement, the
structure of the formal agreement, the shape of the
performance incentives and the way in which financial
rewards and performance-linked deductions are
applied will have a significant impact on the success
in delivering project outcomes and the way in which
the relationship works. Good contract design has long
been regarded as the essence of the contractual art.
Ensuring Public and Private Interests are
Aligned
Contractual incentives must ensure that the interests
of the private provider are aligned with those of the
government customer – that private interest is joined
to public duty. Failure by procurement officers to
understand the government's underlying policy needs
can result in a performance regime that motivates
contractors to act in a manner that is inconsistent with
the public interest. Lack of control over the pricing
of public services has been one source of conflict.
Car Parking at a Public Medical Centre
The PPP for the car park at the publicly owned
Westchester County Medical Center in New York
State was originally hailed as a model contract when
it was signed in the early 1990s. The private car park
operator designed and built the facility at no cost to
the county, and was contracted to operate all of the
parking lots at the suburban complex. Within three
years, parking fees had doubled, and the families of
low-income patients were complaining about the
cost.
Under the contract, the operator had been given the
right to set parking rates for 20 years, and in 1999
a new administration purchased the complex from
the franchisee at a premium. A new chief executive
of the medical centre commented: 'When you are
charging so much to park, the person is mad before
they even walk in the door.'31
Ontario's Highway 407
In 1999, the provincial government of Ontario in
Canada franchised a newly-constructed highway
to a private consortium for C$3.1 billion. Over
the next five years, the new owners raised the
tolls by 250%, provoking public outrage. In 2004,
following the election of a new government, the
Minister for Transport took the company to court
over their failure to seek permission for the toll
increases. Two years later, after several unsuccessful
court challenges, the government reached an
accommodation with the company, which agreed to
minor concessions on toll increases.
The (former) Transport Minister was quoted at
the time as saying: 'It's inconceivable that any
government would have given a private consortium
the unfettered right to raise tolls for 99 years. . .
This was a very bad contract.'32
In a lengthy study of Highway 407, former officials
from the Ontario Ministry of Transport accepted
that one of the lessons was that: 'A clearly defi ed
process should ensure that public interest needs
are balanced with private interests. . . Government
must ensure that its rights are protected and that its
obligations (real and perceived) can be achieved.'
Defining the Core Task
The importance of a well-defined business case
and rigorous checkpoint reviews has long been
understood. In the US, the GAO has stressed the
importance of commissioners understanding their
Competition and Contracting: Learning from Past Experience
Page 19
4. Contract Design
requirements and defining them in realistic terms.
For reasons that are entirely understandable, the
DoD employed incomplete contracts – 'undefi itised
contractual actions' or 'letter contracts' – in the early
stages of reconstruction in Iraq.
The GAO concluded there were often good reasons
for such informal arrangements at the outset of a
contract where there was insufficient time to negotiate
contractual conditions in advance. However, there
were legal requirements for prompt clarification and
finalisation of contractual conditions thereafter that
were not always followed. The GAO pointed out that
this left the government exposed to escalating costs33.
Establishing an Appropriate Performance
Regime
Designing a performance regime that delivers the
customer's core outcomes is a challenging task. It
requires procurement officials to understand the
service model (the way in which inputs are connected
to outputs and outcomes), to identify a small number
of key deliverables and the measures that will
motivate appropriate conduct, and to ensure that the
performance regime is flexible enough to take account
of different service conditions.
Performance Regimes for Light Rail
Contracts
Iraq Reconstruction
In March 2003, the US Ar my Field Support
Command issued a contract to support the
Coalition Provisional Authority, the body charged
with the reconstruction of Iraq in the aftermath
of the war. The estimated cost of the work to
be performed under the contract was originally
$858,803. But over a period of six months, the
statement of work had been modified nine times.
By September, the cost had increased to $204
million, an increase of almost 25,000 percent. As
late as March 2004, the statement of work under
this contract had still not been finalised.
The GAO recognised that, in order to meet urgent
operational needs, it was sometimes necessary for
contractors to begin work before the key contractual
terms, including price, had been finalised. In this
case, much of the delay in finalising the contractual
requirements lay in the continued growth of
reconstruction efforts. However, the failure to
finalise contractual requirements in a timely way
could have a significant impact on contract costs
and related risks34.
A recent study of contractual perfor mance
measurement by the Serco Institute compared the
incentives created under several different kinds of
rail contracts. In one case, the performance regime
focused on 'headways' – the intervals between
trains – for reasons of safety and service regularity.
However, strong performance-linked deductions
created an incentive to maintain headways above
all else, so that if one train was running late, it
made sense to ensure that following trains were
proportionately late.
Another contract focused on journey length, with
a requirement to complete the total journey within
a specified timeframe. Since this contract failed to
address headways, where a train was running late,
the service operator had an incentive to bunch the
subsequent services as closely as possible.
A third contract addressed both journey length and
service intervals, but was so inflexible that in some
circumstances the contractor faced performancelinked deductions no matter what course was
adopted. This still caused the contractor to make
operating decisions based on what minimised the
Competition and Contracting: Learning from Past Experience
Page 20
4. Contract Design
performance-linked deductions, rather than what
was best for the travelling public35.
Contracting for Outputs
Where services are complex, and client and provider
are unclear about the linkages between inputs and
outputs, and where public officials have a low level of
trust in the private sector's capacity to understand and
deliver public sector outcomes, then there are good
reasons why procurement officials should specify
inputs in the contractual performance regime.
However, detailed specification of inputs narrows the
scope for innovation, which may limit the opportunity
for contractors to deliver savings and experiment with
better ways of serving end-users.
US Federal Procurement
In 1995, US Vice President Al Gore mocked
the rigidity of federal government procurement
rules. Government wasn't a smart shopper, he
said, spending too much in demanding goods and
services that were custom-made to government
specifications:
'For example, instead of buying Chips Ahoy
cookies at wholesale – say, for the Army – it created
700 pages of procurement specifications defining
for contract bakers how to make chocolate chip
cookies. The specifications, as many soldiers no
doubt would tell you, don't require the cookies to
taste good.'36
A common trend in public ser vice contracting
over the past decade has been the transition from
the specification of inputs towards contracting for
outputs and outcomes. Prison contracts increasingly
specify the desired educational outcomes from
prisoner education, rather than just mandating the
number of hours of classroom attendance. The US
DoD has started contracting for launch services rather
than rockets. And some local authorities in the UK
have made part of their financial payments for waste
collection and street cleaning contingent on public
perceptions of the cleanliness of municipal spaces.
However, output-based contracts carry significant
costs, and immense risks, where there is significant
risk transfer and the quality of the outputs are poorly
understood.
London Underground PPP
Between December 2002 and April 2003, London
Underground signed three 30-year partnerships
w i t h t wo c o n s o r t i a f o r t h e m a i n t e n a n c e
and renewal of the city's underground rail
infrastructure. The net present value of the three
contracts was valued at £ 15.7 billion. In July 2007,
little more than four years into the contract, one of
the two consortia was forced into administration,
after the shareholders and creditors refused
to provide more funding. The contractor had
overspent by some £ 2 billion.
A detailed analysis of the collapse has yet to be
undertaken, but an analysis by the NAO in 2004
identified some of the challenges associated with
these three PPPs.
• The parties had a limited understanding of
the state of the least accessible infrastructure.
• Responsibility was split between operations
and infrastructure, a division that did not exist
in any other major metro system in the world.
• The contracts were outcome-based, which,
given the uncertain state of the infrastructure,
made it difficult to measure success. Given the
lack of knowledge of historical performance,
Competition and Contracting: Learning from Past Experience
Page 21
4. Contract Design
•
•
it was difficult to know how difficult the
targets would be to achieve. Some of the
deliverables could only be measured some
years in the future.
There was uncertainty as to the allocation of
risk. An official closely involved in negotiating
the contract has recently argued that the
customer thought it was a fi ed price contract,
while the contractor thought it was cost plus.
In some areas, the customer could issue
corrective notices, but there were no direct
performance-linked deductions. What financial
incentives there were impacted only at the
margins of profitabilit .
As a result, the contract neg otiations were
extraordinarily complex – they had taken twice
as long as expected and they had been conducted
at a cost of £ 455m. One of the contracts was
said to be almost 3,000 pages in length. Because
of the uncertainty, it was fully expected that the
price would change over time, and the flexibility
mechanism proved to be insufficient when one of
the franchise holders fell behind on its contractual
obligations37.
Competition and Contracting: Learning from Past Experience
Page 22
5. Contractual Accountability
I
f contractual incentives are to be effective, then
the performance of service providers must be
monitored, results must be publicly reported, and
contractors must be motivated through financial and
reputational incentives. However obvious this may
appear in theory, it has not always been implemented
in practice.
Monitoring Performance
At its simplest, good contractual accountability lies in
the recruitment of a sufficient number of experienced
public officials who are capable of monitoring the
performance of the contractor and ensuring that
the contractual conditions are met. The quantity
and quality of contract management staff has been
a matter of comment right across the industrialised
world, but for a variety of reasons, it has received
particular attention in the US.
Spot Contracting for Prison Places
One of the most interesting developments in
the US prison market over the past two decades
has been the emergence of a 'spot' market for
prison places. Most prisons have been constructed
and operated by private companies following a
formal procurement initiated by state and federal
authorities. However, a number of private providers
and municipal authorities have constructed new
prisons on a speculative basis, expecting that state
and federal governments would contract for places
on a short-term basis.
For much of the past decade, this has been a sellers'
market, so that prison providers have been in a
strong negotiating position, with greater capacity
to dictate terms than under traditional competitive
tendering arrangements. This has contributed to
lower monitoring standards: according to one study,
90% of 'spec' prisons were monitored fewer than
20 hours a month, whereas 52% of traditionally
contract prisons were monitored for more than 80
hours a month. The lack of monitoring has been
identified as one reason why standards in the 'spec'
facilities have not been as high as in the traditionally
contracted prisons38.
US Defence Contracting
As part of a move to deregulate federal contracting
and to reduce costs, there was significant
downscaling of contract monitoring and inspection
staff throughout the 1990s. Staffing numbers at
the office of the DoD Inspector General were cut
by 21% between 1994 and 1997. At the Defense
Contract Management Command, staff were cut
by 27% between 1993 and 1997. This was followed
by a massive increase in demand for contract
management brought about by the conflicts in
Afghanistan and Iraq.
A GAO study in 2005 found that in nearly a third
of 90 defence service contracts that had been
reviewed, oversight had been inadequate due to
a failure to assign performance monitors. And a
subsequent study concluded that DoD still did not
have sufficient contractor oversight at deployed
locations39.
In looking at major defence procurements in 2007,
the UK PAC noted that key Ministry of Defence staff
were neither held to account for a project's failure,
nor rewarded for its success. The department had
committed to promote staff in post in order to retain
key skills, and to move staff in the case of failure.
However, the committee pointed to the need to
establish and publish an objective means of measuring
success, and share its learning with other departments
of government40.
Competition and Contracting: Learning from Past Experience
Page 23
5. Contractual Accountability
Benchmarking Performance
Benchmarking ongoing performance is probably
the only way of ensuring value-for-money in longterm contracts. Over time, the competitiveness of
the original contract price can cease to represent
value-for-money as market conditions change, and as
suppliers remain aloof from market pressures.
The $620 Ashtray
Throughout the early 1980s, media reports and
congressional hearings identified outrageous
examples of overcharging in the US defence
contracting sector that quickly became legendary
– light bulbs worth $0.67 that were charged to the
Pentagon at $18, ashtrays for the Navy Hawkeye
Radar Plane priced at $620, and coffee brewers
for the C-5A Transport that were valued at $283
in the market but charged to the government at
$7,600 apiece. After a decade of tightening up, the
problems surfaced again in the late 1990s – screws
costing 57 cents, charged at $76; electric bells worth
$46.68, charged at $714.
There were a number of explanations for this
overcharging. In a famous episode of the David
Letterman Show in the 1990s, Vice President Al
Gore smashed one of these over-priced ashtrays,
arguing that it was over-detailed government
specifications that had resulted in excessive
pricing. Others claimed that they arose from a
practice of allowing overheads to be allocated
disproportionately to such minor items. But
according to the Project on Government Oversight
(POGO), one of the organisations that first
exposed the issue, the root of the problem lay in
the fact that the military were not benchmarking the
goods and services being sold to them by existing
contractors41.
POGO argued that it was not sufficient for contract
managers to extrapolate old prices or rely on the
outcome of the original competition. Particularly for
long-term contracts, government needs to benchmark
ongoing performance based on a 'should cost' basis.
For the same reason, in order to ensure that they are
getting value-for-money, governments need to track
performance.
Rewarding Performance
The principal tool for holding contractors to account
on service quality lies in the financial incentives
associated with the agreement – bonuses for superior
performance and, more often, performance-linked
deductions for underperformance. But for contractual
incentives to work, the rewards and performancelinked deductions must be associated with success or
failure in delivering the key performance indicators
under the contract.
US Defence Contracting
Senior GAO officials have claimed that in too many
cases, award fees are paid on the basis of effort and
not results. In one instance, a defence contractor
was paid $849 million in award fees in spite of cost
overruns of $10.2 billion and delays of more than
two years. This amounted to more than 90% of the
available award fee42.
The GAO found that the DoD routinely failed
to hold contractors accountable for achieving
outcomes and in a sample of contracts studied by
the GAO, the DoD paid out $8 billion in award
fees regardless of whether companies had met
contractual expectations43.
Competition and Contracting: Learning from Past Experience
Page 24
6. Contract Management
S
uccessful contract management involves much
more than monitoring performance under the
contractual regime and imposing performance-linked
deductions for the failure to deliver. With contracts
for complex services, and particularly those involving
core public services, contract managers cannot shift
to the contractor the responsibility for successful
outcomes. It is in these circumstances that the term
'partnership' is more appropriately used, with both
client and contractor working together to deliver the
service or project in question.
Managing Risk
In some cases, government agencies have expected
that in negotiating a legally enforceable contract,
they have shifted the entire responsibility for the
delivery of the service to their private sector partners.
Contract management certainly involves a different set
of responsibilities from direct supervision, but when
it comes to core public services, there is no prospect
that the ultimate risk of delivery can be outsourced.
for staff to adapt to the new system. However,
the Agency also failed to undertake adequate
contingency planning in the event that delays did
occur. A failure to communicate effectively with
the public resulted in a loss of confidence when
problems developed and a sharp increase in demand
ahead of the summer holidays. According to the
NAO:
'Many of the risks associated with implementation.
. . had been identified y the Agency at the planning
stage, including delay and lower productivity. But
the risks and the response required had not all been
realistically assessed. . .'44
In 2000, the UK PAC warned:
"Departments need to be clear about those risks
that cannot be transferred to the supplier, in
particular, the wider business risks that might
mature if they do not have a fully operational
system on the date required"45.
The UK Passport Agency
Appropriate Governance
Contracts were let in 1997 for the introduction of
a new computer system to manage the issuance of
new British passports. Project delays, combined
with a tight timetable for the rollout meant that the
Passport Agency was still struggling to introduce the
new system as the busy holiday season approached.
Processing times increased to as much as 50 days
(compared with a target of ten), and by June 1999,
there was a backlog of more than half a million
applications. The Agency's telephone service was
unable to cope with the additional pressure, and
long queues developed outside office .
Failure on the par t of the customer and/or
the contractor to establish suitable governance
arrangements can be a major cause of project failure.
The NAO found that the principal cause of the
crisis lay in the tight timetable, combined with the
failure to adequately assess the time it would take
London Underground PPP
The factual background to these very large and
very complex PPPs has been detailed on Page
20. As noted, less than four years into a 30-year
contract, one of the consortia contracted to
maintain the London Underground was forced into
administration after costs overran and shareholders
and creditors refused to provide additional funding.
Future reviews will identify the lessons to be
learned from this contracting disaster, but some
Competition and Contracting: Learning from Past Experience
Page 25
6. Contract Management
of the former public officials closest to the project
have argued that governance was inadequate given
the complexity of the arrangements:
• The failed consortium was a five-party joint
venture and lacked a strong executive.
• Much of the work was assigned to subcontractors, so that the consortium was a
complex organisation with a long contractual
chain.
• On the customer's side, responsibility was
also fragmented, with one of the stakeholders
actively hostile to the PPPs. As a result,
monitoring and regulation were weak.
Where the governance of a project is complex
– because there are multiple stakeholders on the
government side, or because there are several parties
(joint venture partners or prime and sub-contractors)
involved on the supply – then attention must be paid
to the high-level structures and processes through
which the project will be managed.
Managing the Contractual Chain
Where contractors themselves are sub-contracting to
other suppliers to a significant part of the services in
question, then it may be necessary for the customer to
maintain scrutiny of the contractual chain, both as a
way of ensuring that service quality is maintained and
in order to ensure that it is getting value-for-money.
Blue Roofs in the Wake of Hurricane Katrina
In the aftermath of the hurricane that devastated
New Orleans in August 2005, the Federal
Emergency Management Agency and the Army
Corps of Engineers awarded so-called 'blue roof'
contracts to three large contractors to cover
damaged roofs with plastic sheeting. Much of this
work was immediately sub-contracted and then subcontracted again, with each tier adding its margin.
'According to one published account, the costs
to the taxpayer under the tiered contracts were
sometimes 1,700% higher than the job's actual
cost. A second account reported that the taxpayer
paid an average of $2,480 per roof for a job that
should have cost under $300.' In one case, the
subcontractor who actually performed the work
was paid $0.02 per square foot, while the prime
contractor was paid 36 times that value merely for
passing the work down46.
Successful Partnering
Long-term arrangements, and contracts that involve
close interaction with end-users (and are thus
politically sensitive), require public officials and
private sector managers to work closely together in
true partnerships. Problems are inevitable where the
parties do not develop a common appreciation of
the challenges and a shared understanding of the
solutions.
The National Insurance Recording System
(NIRS)
NIRS maintained the details of more than 65
million national insurance accounts in the UK.
In 1995, a contract was awarded by the Benefits
Agency to a private fi m to develop an entirely new
system in less than two years. Within a brief time,
it became clear to the contractor that the scale and
scope of the project were such that it could not be
completed in the timescale, and a phased approach
was recommended and adopted.
However, the project still encountered major
difficulties and was delayed even further, resulting in
Competition and Contracting: Learning from Past Experience
Page 26
6. Contract Management
hardship for some individuals receiving retirement
pensions and incapacity benefits. It was necessary
to make payments on an interim basis, which in
some cases resulted in vulnerable individuals being
underpaid.
Commission subsequently established that the cause
was an O-ring on one of the solid rocket boosters
that had become brittle at low temperatures. As
a result, hot gas had leaked from the booster and
pierced a fuel tank, causing the explosion.
The PAC discovered that the parties to the
contract did not have a common understanding
on key commitments around delivery, nor did
they have a shared understanding of each other's
responsibilities. The PAC stressed that: 'In complex
major systems of this nature, which affect millions
of citizens, the relationship between the Agency
and its contractors is crucial to success.'47
There had been different problems with the O-rings
for several years, but NASA had taken the view that
a two-year delay to the shuttle programme, while
the joints were re-designed, was not warranted.
Partnering involves an overhead in terms of cost and
effort, but where complex services are involved, this
is more than justified in terms of the results. Even
at its simplest, it demands greater time and effort
in communication than under a simple contractual
arrangement.
Partnerships in Complex Structures
Even where client and contractor organisations are
working closely together, systemic failure is possible
due to the sheer complexity of the way in which
various teams work together. This is true even
of unitary structures, so that where two or more
organisations are working in partnership, and where
processes are tightly interconnected, the way in which
organisational structures and professional cultures
interact is fundamental to success.
NASA and the Challenger disaster
On 28 January 1986, ten miles off the ground and
seventy-three seconds after take-off, the Space
Shuttle Challenger exploded, killing the seven
astronauts on board, including Christa McAuliffe,
NASA's first 'teacher-in-space'. A Presidential
In particular, engineers working for the contractor
had identified a risk to the O-rings at low
temperatures (and raised this with NASA), and
when it became clear that the morning would
be extremely cold, they recommended against
launch. Management accepted their advice and
passed on the recommendation to NASA. Officials
told the contractor that they were appalled by
their recommendation and asked for evidence
that Challenger was not flight-ready. One of
the engineers later wrote of 'intense customer
intimidation'.
Faced with a threat to their relationship with NASA,
the contractor's senior management team reversed
their stand, denying their engineers a further role
in the deliberations. NASA immediately accepted
the launch recommendation without question, only
demanding a signed copy of the rationale for the
records.
The Presidential Commission blamed operator
failure, but professional studies of the Challenger
disaster have since focused on organisational
culture. It was not so much the individuals who
were to blame as the social framework within which
they worked to resolve complex technological
problems.
The problem was not that the two organisations
were not working closely tog ether. NASA
Competition and Contracting: Learning from Past Experience
Page 27
6. Contract Management
personnel were located at the contractor's plant,
there were regular face-to-face meetings, and
teleconferences were a way of life. NASA officials
robustly challenged the contractor's research,
and sophisticated risk assessment processes were
in place. Moreover, the engineers from the two
organisations had worked together to resolve
emerging problems associated with the joints and
O-rings over several years.
One of the factors that may have influenced the
contractor's management team to acquiesce was
their heavy reliance on NASA for work. In this case,
authority relations between the government client
and the private contractor probably worked against
mission safety. But in deciding to recommend the
launch, managers within NASA and the contractor
were working within a decision-making framework
that had evolved over a series of successful shuttle
launches in which together they had adjusted to
heightened risk levels48.
Competition and Contracting: Learning from Past Experience
Page 28
7. Market Design
I
n the beginning, the challenge lies in design and
management of good procurement processes, but
where government expects to be engaged in negotiating a succession of contracts for similar goods and
services, public officials face an even more fundamental challenge – the design and management of competitive markets.
This involves much more than effective procurement.
Public officials must also be concerned with designing market structures – the regulatory and managerial
framework within which contracts will be let – and in
building market capacity.
Market Shaping
IT Outsourcing by the Australian
Government
When the Australian federal government initiated a
whole-of-government programme of IT outsourcing in 1997, implementation lagged by more than
two years, and the cost escalated by at least 200%.
The Auditor-General identified industry capacity as
one of the principal causes of the delay:
‘. . .industry interest in participating in tenders under the IT Initiative, and its capacity to absorb the
volume of tendering activity being undertaken, has
varied from that originally expected. This has been
a significant factor in the need to revise and extend
the implementation schedule. . .’49
Market design is about much more than just building
procurement capability (important though this is). It
is also concerned with tracking supply and demand –
to understand demand pressures and to ensure that
public sector organisations are not competing against
one another and bidding up the prices for scarce resources.
In the case of the Australian government’s IT outsourcing initiative, government inquiries recommended that a specific agency be assigned responsibility for
the conduct and coordination of market surveillance
and analysis 50. Good design seeks to avoid overreliance on a small number of suppliers, and good
management involves tracking the extent of competition (identifying trends such as market concentration
and the withdrawal of suppliers).
Government also needs to be concerned with developing capacity and capability among private providers
and assisting public and voluntary sector providers to
become more commercial, so that government is sure
of strong competition from organisations with appropriate skills51.
A study commissioned in 2004 by the UK Office of
Government Commerce (OGC) found that the public
sector was the largest single client in the construction
sector (representing around one-third of demand at
that time). In some parts of the country, there were
supply constraints, and right across the country, there
was an opportunity for the smoothing of public sector demand in order to secure better value-for-money.
Earlier communication with the market about the
government’s future infrastructure demands was identified as a significant opportunity for improvement.
OGC developed a Guide to Effective Market Shaping,
with a view to matching supply and demand for public services52.
These are not new insights. A report on government
IT projects, published in 2000 by the PAC of the UK
House of Commons, advised (among other things)
that government needed to coordinate its major
projects better, ‘making better use of its purchasing
power, and prioritising the projects it would like to see
implemented, to avoid contributing to an overheating
of the market. . .’53
Competition and Contracting: Learning from Past Experience
Page 29
7. Market Design
Market Depth
The UK Market for Managing Local
Education Authorities
Legislation passed in 1998 gave the UK Education
Secretary power to intervene in local education
authorities (LEAs) that were deemed to be
failing. Ofsted, the education standards authority,
subsequently identified around 20 LEAs that were
failing and had not been able to turn around their
performance. Eleven of these were reformed
through internal intervention, while the other nine
were exposed to market-testing.
Companies were encouraged to invest in this
emerging market, and there was an expectation
that if these pilot projects proved to be successful,
then further opportunities would follow. These
companies assumed financial risks and invested
in new capabilities, expecting that they would be
written off over a succession of future projects.
Research has shown that student performance at
the privately managed LEAs improved more than
the national average, and by more than the 11
LEAs that were exposed to internal intervention.
However, for the most part, the contracts have not
been renewed as they have expired, and only one or
two authorities have entered into new partnerships
with the private sector. A subsequent study by
the Confederation of British Industry – the peak
industry association in the UK – argued that the
education department needed to acquire intelligence
and skills to engage in market development54.
In the interest of building deeper markets, public officials must also make decisions about contract size
and contract length – a small number of very large
contracts will thin out the market and make it harder
to ensure competitive procurement. Large contracts
tend to favour incumbents. On the other hand, smaller contracts make it easier for new fi ms to enter the
market, thereby deepening competition. (However,
contracts also have to be large enough to justify investment in bidding and in the improvement of physical infrastructure and the retraining of people.)
Officials also need to consider deal fl w – companies
will make deeper investments in capability and suppliers will be more responsive to the client’s ongoing
demands if they are aware of a stream of future opportunities55.
Fair Markets
Companies will not invest in public service markets –
and governments will not ensure value-for-money – if
market rules are biased in favour of particular kinds
of provider. This is most often a problem when public sector organisations are competing in the market,
because of the lack of transparency around the costs
of production and the traditional advantages enjoyed
by public sector monopolies.
Taxation of Public Service Providers
A recent report by the NAO in the UK on
the market for corporate shared ser vices in
government concluded with a warning that 'for
some organisations, buying shared services incurs
irrecoverable VAT [a goods and services tax].
This provides a potential disincentive to moving
to shared services.' Indeed, the UK rules on the
taxation of business enterprises are so complex,
that in higher education, the tax advantages can flip
between the public and private sectors depending
on whether training is provided to an individual or a
business56.
Competition and Contracting: Learning from Past Experience
Page 30
7. Market Design
Regulatory and pricing policies also impact on the robustness of the market, and the transparency of pricing by public sector incumbents and ease of access
to key facilities will influence the success that public
officials have in building new markets57. The lack of
‘competitive neutrality’ in public service markets has
been raised as a major issue in the UK, where both
the voluntary and the private sectors have published
major reports on this issue58.
Competition and Contracting: Learning from Past Experience
Page 31
8. Endnotes
1. Although widely used, the quotation is never
sourced, and Glenn never seems to h ave
identified it as his own.
2. GAO, 'Military Operations: High-Level DOD
Action Needed. . .', GAO-07-145, Washington:
Government Accountability Office, December
2006, p.24, located at (http://www.gao.gov/new.
items/d07145.pdf).
3. Bernard Pool, 'Navy Contracts in the Last Years
of the Navy Board (1780-1832), The Mariner's
Mirror, (August 1964) 50:3, pp.161-176 at p.172.
4. Office of Fair Trading, 'More competition, less
waste: Public procurement and competition in the
municipal waste sector', May 2006, p.15, located at
(http://www.oft.gov.uk/shared_oft/reports/
comp_policy/oft841.pdf).
5. For a discussion of the process overall, see
Richard Allsop, 'Victoria's Public Transport:
Assessing the Results of Privatisation', IPA
Backgrounder, Vol.19 No.1, Melbourne: Institute
of Public Affairs, April 2007, located at (http://
www.ipa.org.au/files/ALLSOP_transport.pdf).
The analysis of the underlying causes emerges
from direct conversations with public and
company officials.
6. Australian National Audit Office (ANAO),
'Implementation of Whole-of-Government
I n f o r m a t i o n Te c h n o l o g y I n f r a s t r u c t u r e
Consolidation and Outsourcing Initiative',
Audit Repor t No.9, 2000-2001, Canber ra:
Commonwealth of Australia, 2000, located at
(http://www.anao.gov.au/uploads/documents/
2000-01_Audit_Report_9.pdf).
7. Richard Humphr y, 'Review of the W hole
of Gover nment Infor mation Technolog y
Outsourcing Initiative, Canberra: Commonwealth
of Australia, December 2000, pp.11-12, 14.
8. Auditor-General of Canada, 'Report to the House
of Commons, December 2002. Chapter 10:
Department of Justice – Costs of Implementing
the Canadian Firearms Program' located at
(http://www.oag-bvg.gc.ca/domino/reports.nsf/
html/20021210ce.html/$file/20021210ce.pdf);
9.
10.
11.
12.
13.
Competition and Contracting: Learning from Past Experience
Auditor-General of Canada, Report to the House
of Commons, May 2006, Chapter 4, 'Canadian
Firearms Program' located at (http://www.oagbvg.gc.ca/domino/reports.nsf/html/20060504ce.
html/$file/20060504ce.pdf); Standing Committee
on Public Accounts, 'Chapter 4: Canadian
Firearms Program of the May 2006 Report of the
Auditor-General of Canada', House of Commons,
December
2006
located
at
(http://
cmte.parl.gc.ca/Content/HOC/committee/391/
pacp/reports/rp2560006/391_PACP_Rpt10/
391_PACP_Rpt10-e.pdf).
Auditor General of Canada, 'Report to the House
of Commons, November 2006. Chapter 3: Large
Information Technology Projects', Ottawa: Office
of the Auditor General of Canada, 2006, located
at (http://www.oag-bvg.gc.ca/domino/reports.
nsf/html/20061103ce.html/$file/20061103ce.
pdf).
Tony Collins and David Bicknell, Crash: Ten Easy
Ways to Avoid a Computer Disaster, London:
Simon & Schuster, 1997; 'The Hidden Threat
to E-Government – Avoid Large Government
IT Failures', OECD Public Management Policy
Brief No.8, March 2001, located at (http://www.
oecd.org/dataoecd/19/12/1901677.pdf); Auditor
General of Canada, 'Report to the House of
Commons, November 2006. Chapter 3: Large
Information Technology Projects', 2006, p.7
Francis Small, 'Ministerial Inquiry into INCIS',
Wellington: Ministry of Justice, 13 October 2000,
p.66, located at (http://www.justice.govt.nz/
pubs/reports/2000/incis_rpt/index.html).
Public Accounts Committee, 'Improving the
Deliver y of Gover nment IT Projects', HS
65 Session 1999-2000, London: House of
Commons, 5 January 2000, paragraphs 3 & 21,
located at (http://www.publications.parliament.
uk/pa/cm199900/cmselect/cmpubacc/65/6502.
htm).
Auditor General of British Columbia, 'A Review
of the Fast Ferry Project: Governance and Risk
Page 32
8. Endnotes
14.
15.
16.
17.
18.
Management', Victoria, 1999, p.6 located at
(http://www.bcauditor.com/PUBS/1999-00/
report-5/BC-Ferries.pdf);
Standing
Select
Committee on Public Accounts, 'Governance
and Risk Management of the Fast Ferry Project',
Victoria: Legislative Assembly of British
Columbia, 2000, located at (https://www.legis.
gov.bc.ca/cmt/36thParl/cmt12/2000/36-4PAC12.pdf).
Joint Select Committee on the Cross City
Tunnel, 'First Report: Cross City Tunnel' &
'Second Report: The Cross City Tunnel and
Public Private Partnerships', Sydney: Parliament
of New South Wales, 2006; Auditor-General,
'Performance Audit: The Cross City Tunnel
Project', Sydney: The Audit Office of New
South Wales, May 2006. These three reports are
located at (http://www.parliament.nsw.gov. au/
prod/PARLMENT/Committee.nsf/0/
8b0349618dd76fffca257123000c0727/$FILE/
CCT_First%20Report_FULL.pdf); (http://www.
parliament.nsw.gov.au/prod/PARLMENT/
Committee.nsf/0/F412E826BC3DFD5BCA25
71720010FC97) and (http://www.audit.nsw.gov.
au/publications/reports/performance/2006/
cross_city_tunnel/cross_city_tunnel.pdf).
NAO, 'Criminal Records Bureau: Delivering Safer
Recruitment?', HC 266 Session 2003-2004, 12
February 2004, located at (http://www.nao.org.
uk/publications/nao_reports/03-04/0304266.
pdf).
John D. Donahue, The Privatization Decision:
Public Ends, Private Means, New York: Basic
Books, 1989, p.78.
Office of Fair Trading, 'More competition, less
waste', May 2006, p.14.
Committee on Government Reform – Minority
Staff, 'Dollars Not Sense', Prepared for Rep.
Henry A. Waxman, United States House of
Representatives, June 2006, p.8, located at (http://
oversight.house.gov/Documents/2006071110391
0-86046.pdf).
19. D a v i d M . Wa l k e r , ' D O D A c q u i s i t i o n s :
Contracting for Better Outcomes', GAO-06800T, Washington: GAO, 7 September 2006,
p.6, located at (http://www.gao.gov/new.items/
d06800t.pdf).
20. 'Waste, Fraud, and Abuse in Hurricane Katrina
Contracts', US House of Representatives,
Committee on Government Reform – Minority
Staff, Special Investigations Division, August
2006, pp.2-3, located at (http://oversight.house.
gov/documents/20060824110705-30132.pdf).
21. Auditor of Public Accounts, 'Assessment of
Kentucky's Privatization Efforts: Performance
Audit', Frankfort, KY, October 2006, located at
(http://www.auditor.ky.gov/Public/Audit_Reports/
Archive/2006PrivatizationAuditReport.pdf).
22. NAO, 'New IT Systems for Magistrates' Courts:
the Libra Project', HC 327 Session 2002-2003,
London: The Stationery Office, 27 January 2003,
located at (http://www.nao.org.uk/publications/
nao_reports/02-03/0203327.pdf).
23. Office of Fair Trading, 'More competition, less
waste', May 2006, p.16.
24. See for example – Standard & Poor's, 'Traffic
Risk in Start-Up Toll Facilities', September
2002, with updates; Mette K. Skamris and Bent
Flyvbjerg, 'Inaccuracy of traffic forecasts and cost
estimates on large transport projects', Transport
Policy, (1997) 4:3, pp.141-146; Don H. Pickrell,
'Urban Rail Transit Projects: Forecast Versus
Actual Ridership and Costs', DOT-T-91-04, US
Department of Transportation, October 1990.
25. Public Accounts Committee, 'Improving the
Delivery of Government IT Projects', 5 January
2000, paragraph 3.
26. Stephen Shaw, 'Report of the Inquiry into the
Disturbance and Fire at Yarl's Wood Removal
Centre', London: Prisons and Probation
Ombudsman, October 2004, p.146, located at
(http://www.ppo.gov.uk/download/reports/
yarlswoodinquiryreport.pdf).
27. Stephen Shaw, 'Report of the Inquiry into the
Competition and Contracting: Learning from Past Experience
Page 33
8. Endnotes
Disturbance and Fire at Yarl's Wood Removal
Centre', October 2004, p.337.
28. Committee of Public Accounts, 'HM Treasury:
Tendering and Benchmarking in PFI', HC 754
Session 2006-07, London: The Stationery Office,
27 November 2007, p.6, located at (http://
www.publications.parliament.uk/pa/cm200607/
cmselect/cmpubacc/754/754.pdf); Audit
Commission, 'Healthy Competition: How
Councils Can Use Competition and Contestability
to Improve Services' , London : Audit
Commission, November 2007, p.3, located at
(http://www.audit-commission.gov.uk/Products/
NATIONAL-REPORT/D8FF4C6D-C465-4f819052-C18A0C16E83C/HealthyCompetition2007
_27Nov07.pdf).
29. Fo r a b r i e f s u m m a r y, s e e C o m m i t t e e o n
Government Reform – Minority Staff, 'Dollars
Not Sense', 2006, pp.32-34.
30. Francis Small, 'Ministerial Inquiry into INCIS', 13
October 2000, pp.94-106.
31. Elliott D. Sclar, You Don't Always Get What You
Pay For, Ithaca: Cornell University Press, 2000,
pp.104-105.
32. K i m L a m b e r t , D i r e c t o r, M o d a l Po l i c y &
Par tnerships Branch, Policy and Planning
Division, Ontario Ministry of Transportation,
'Highway 407: Lessons Lear ned', Regional
Finance Workshop on Public Private Partnerships,
December 2006.
33. K a t h e r i n e V. S ch i n a s i , ' Re b u i l d i n g I r a q :
Continued Prog ress Requires Overcoming
Contract Management Challenges', GAO-061130T, Washington: GAO, 28 September 2006,
p.5, located at (http://www.gao.gov/new.items/
d061130t.pdf); Office of the Special Inspector
General for Iraq Reconstruction, 'Review of
the Use of Definitiz ation Requirements for
Contracts Supporting Reconstruction in Iraq',
SIGIR-06-019, 28 July 2006, located at (http://
www.sigir.mil/reports/pdf/audits/06-019.pdf).
34. GAO, 'Rebuilding Iraq: Fiscal Year 2003, Contract
Award Procedures and Management Challenges',
GAO
-04-605, W
ashington, DC: United States
General Accounting Office,June 2004, pp.22-24,
located at (http://www.gao.gov/new.items/
d04605.pdf).
35. Briony Smith, What Gets Measured: Contracting
for Delivery, London: The Serco Institute, 2007,
pp.12-13, located at (http://www.serco.com/
Images/What%20Gets%20Measured_tcm3-2124
1.pdf).
36. V i c e P r e s i d e n t A l G o r e, C o m m o n S e n s e
Government: Works Better and Costs Less, New
York: Random House, 1995, pp.114-115.
37. NAO
, 'London Underground PPP: W
ere They
Good Deals?' & 'London Underground: Are
the Public Private Partnerships Likely to W
ork
Successfully?', HC 644 & 645 Session 2003-2004,
17 June 2004, located at (http://www.nao.org.uk/
publications/nao_reports/03-04/0304644.pdf) &
(http://www.nao.org.uk/publications/nao_report
s/03-04/0304645.pdf).
38. D o u g l a s M c D o n a l d a n d C a r l Pa t t e n J r. ,
'Governments; Management of Private Prisons',
Cambridge, MA: Abt Associates, Inc., 15
September 2003, located at (http://www.ncjrs.
gov/pdffiles1/nij/grants/203968.pdf).
39. D a v i d M . Wa l k e r , ' D O D A c q u i s i t i o n s :
Contracting for Better Outcomes', 7 September
2006, p.1; GAO, 'Military Operations: HighLevel DOD Action Needed. . .', GAO-07-145,
Washington: December 2006, located at (http://
www.gao.gov/new.items/d07145.pdf).
40. NAO
, 'Ministry of Defence: Major Projects
Report 2006', HC 295 Session 2006-07, London:
The Stationery Office, 11 September 2007, p.5,
located at (http://www.publications.parliament.
uk/pa/cm200607/cmselect/cmpubacc/295/295.
pdf).
41. The Project on Government Oversight,'Defense
Waste & Fraud Camouflaged as Reinventing
Government', 1999, at (www.pogo.org/p/
defense/do-990920-refor m.htm); Lani A.
Competition and Contracting: Learning from Past Experience
Page 34
8. Endnotes
Perlman, 'Guarding the Government's Coffers:
The Need for Competition Requirements to
Safeguard Federal Government Procurement',
Fordham Law Review (2007), 75, pp.3187-3245 at
p.3195.
42. Cited in Committee on Government Reform –
Minority Staff, 'Dollars Not Sense', 2006, p.38.
43. David M. Walker, 'DOD Acquisitions: Contracting
for Better Outcomes', 7 September 2006, p.7.
44. NAO, 'The Passport Delays of Summer 1999',
HC 812 Session 1998-99, London: National Audit
Office, 27 October 1999 at (http://www.nao.org.
uk/publications/nao_reports/9899812.pdf).
45. Public Accounts Committee, 'Improving the
Delivery of Government IT Projects', 5 January
2000, paragraph 32.
46. Committee on Government Reform – Minority
Staff, 'Waste, Fraud, and Abuse in Hurricane
Katrina Contracts', US House of Representatives,
August 2006, pp.5, 8-9, citing the Washington
Post and a Knight Ridder report.
47. Select Committee on Public Accounts, 'Delays to
the New National Insurance Recording System',
HC 182 Session 1998-99, London: House of
Commons, 12 July 1999, located at (http://www.
publications.parliament.uk/pa/cm199899/
cmselect/cmpubacc/182/18202.htm).
48. D i a n e Va u g h a n , T h e C h a l l e n g e r L a u n ch
Decision, Chicago: University of Chicago Press,
1996; Wade Robinson, Roger Boisjoly, David
Hoeker and Stefan Young, 'Representation and
Misrepresentation: Tufte and the Morton Thiokol
Engineers on the Challenger', Science and
Engineering Ethics (2002) 8, pp.59-81.
49. A N AO, ' I m p l e m e n t a t i o n o f W h o l e - o f G o v e r n m e n t I n f o r m a t i o n Te c h n o l o g y
Infrastructure Consolidation and Outsourcing
Initiative', 5 January 2000, pp.13 & 51.
50. A N AO, ' I m p l e m e n t a t i o n o f W h o l e - o f G o v e r n m e n t I n f o r m a t i o n Te c h n o l o g y
Infrastructure Consolidation and Outsourcing
I n i t i a t ive ' , 5 Ja nu a r y 2 0 0 0 , p. 2 8 ; R i ch a r d
Humphry, 'Review of the Whole of Government
Information Technology Outsourcing Initiative,
December 2000, p.8.
51. These insights lay at the heart of a major review
of government procurement conducted by the
Office of Government Commerce in the UK
government, from 2003 to 2006 – see (http://
www.ogc.gov.uk/procurement_initiatives_the_kel
ly_programme.asp).
52. See (http://www.ogc.gov.uk/procurement_initia
tives_guide_to_effective_market_shaping_gems.
asp).
Public
Accounts Committee, 'Improving the
53.
Delivery of Government IT Projects', 5 January
2000, paragraph 42.
54. CBI, 'The Business of Education Improvement:
Raising LEA Performance Through Competition',
London: Confederation of British Industry, 2005,
located
at
(http://www.cbi.org.uk/pdf/
leareport0305.pdf).
55. See Office of Fair Trading, 'More competition,
less waste', May 2006, pp.13 & 16-17.
56. NAO, 'Improving Corporate Functions Using
Shared Ser vices', HC 9 Session 2007-2008,
London: The Stationery Office, 26 November
2007, p.11, located at (http://www.nao.org.uk/
publications/nao_reports/07-08/07089.pdf).
57. Office of Fair Trading, 'More competition, less
waste', May 2006, p.19.
58. See, for example, Gar y L. Sturgess, 'A Fair
Field and No Favours: Competitive Neutrality
i n U K P u b l i c S e r v i c e M a r ke t s ' , L o n d o n :
CBI and the Serco Institute, 2006, located at
(http://www.cbi.org.uk/ndbs/positiondoc.
nsf/1f08ec61711f29768025672a0055f7a8/
CE7B6D0974B3B16E80257101005E1A42/$file/
fairfield.pdf).
Competition and Contracting: Learning from Past Experience
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