Government accused of deliberate attempt to cover up fraudulent, incompetent and embarrassing outsourcing contracts

The chair of the Commons public accounts committee Margaret Hodge has hit out at the government for outsourcing contracts to private companies (Getty Images)

The Government is today condemned by MPs of all parties for hiding behind a “veil of secrecy” over the award of contracts worth nearly £100 billion a year to huge private companies.

Problems are particularly acute at the Department for Work and Pensions, which is on the “verge of meltdown” over the privately-run operation of welfare reforms and employment programmes, they say.

In a scathing verdict on the Coalition’s drive to contract out public services, the Commons public accounts committee (PAC) accused ministers of trying to cover up mistakes by refusing to divulge details of contracts.

It said the Government was failing to get best value for money and lacked the expertise to ensure “privately-owned public monopolies” provided quality services.

The committee’s chair, Margaret Hodge, said: “If it’s not sorted out it will become the biggest ad for renationalising public services.”

Protesting that contracts were too often “shrouded in a veil of secrecy”, she claimed: “We are in danger of creating a shadow state that is neither transparent nor accountable to Parliament or the public.”

Its conclusion follows a series of scandals involving corporate giants, including the disclosure that G4S and Serco charged the Ministry of Justice for years to fit electronic tags to non-existent offenders and the spectacular failure by G4S to supply enough security guards to the 2012 London Olympics.

The committee demanded that contracts with private companies are put into the public arena. It said four major firms it quizzed – Atos, Capita, G4S and Serco –were prepared to agree to the move, adding that it appears that “the main barriers to greater transparency lie within Government itself”.

Mrs Hodge said: “An absence of real competition has led to the evolution of privately-owned public monopolies which have become too big to fail.

“Some public service markets such as for private prisons, asylum accommodation or disability benefit assessments, are now controlled by just one or two major contractors.”

She tore into the Department of Work and Pensions over the involvement of private companies in the Work Programme, which aims to aims to find jobs for the unemployed, and in the administration of the Personal Independence Payments for the disabled and in the new Universal Credit scheme.

“If it doesn’t get its act together, it’s in danger of meltdown in relation to too much of its business,” the former minister said.

“The reluctance to be transparent is in part a reluctance to be honest about a failure to deliver services. They hide behind commercial confidentiality.”

Conservative and Labour governments alike have turned to private companies over the last 30 years.

The Government spends around £187 billion a year on goods and services, about half of which is estimated to be spent on contracting out to private and voluntary providers.

Contractors are now responsible for vast areas of public services from managing offices, providing computer equipment and paying pensions to running prisons and immigration removal schemes, assessing benefit claimants and even maintaining nuclear weapons.

Coalition ministers are stepping up the process with the part-privatisation of the probation service and by handing responsibility to welfare-to-work programme to private companies. Ministers argue that the practice saves cash for the public purse because large companies can achieve economies of scale.

However, the Government has been hit by repeated controversies over the hiving-off of public services, as well as protests that smaller firms are being excluded from bidding.

Ministers had to draft in soldiers to bolster the security at the London 2102 Olympics after G4S admitted it could not fulfil its contract.

Several employees of A4E, which was running a scheme to get the jobless off benefits, have pleaded guilty to forgery. Police were called in following complaints that staff billed taxpayers for work that was carried out or for non-existent clients.

This week G4S agreed to repay nearly £110 million to the taxpayer over the tagging scandal, while Serco has said it would return more than £70 million.

The PAC calls today for Freedom of Information legislation to be extended to cover government deals with private firms, for contractors to be obliged to “open their books up” and for the National Audit Office to be given greater authority to scrutinise contracts. It also said suppliers should be required to have policies on whistleblowing in place.

“Too often the government has used commercial confidentiality as an excuse to withhold information, often in response to Freedom of Information requests from the public or MPs,” the committee says.

It warns that central government management of private contracts has “too often been very weak” and lacks the expertise to extract the greatest value from contractors.

“The Cabinet Office told us that government has a long way to go before it has the skills required to manage contracts properly.

“This is a concern, given the speed at which some departments – such as the Ministry of Justice – are going ahead with outsourcing, despite a poor record.”

A Cabinet Office spokeswoman said: “As the PAC acknowledge, this Government is reforming Whitehall and improving the Civil Service’s commercial capabilities.

“Our reforms saved taxpayers £3.8 billion last year, but there is more to do as part of our long-term economic plan and to build on our world-leading transparency record. When we discovered issues with contracts let before the last general election, we took action, securing £176 million of compensation.”

A DWP spokesman said: “This department has a track record of delivery. We've already successfully launched the Benefit Cap, Universal Credit and the new Personal Independence Payment. The industry tells us that the Work Programme has got almost 500,000 of the hardest to help into jobs. We are bringing in our reforms safely and responsibly.”

But the TUC’s general secretary Frances O’Grady said: “It is time to end the default assumption that anything done by the public sector is better done by private contractors.

“The truth is that there has been a growing tide of outsourcing scandals, fraud and service failure. Some of this is down to government incompetence in contracting out, but much is an inevitable result of replacing the public sector ethos with the profit motive and cost-cutting.”