Private companies should now be considered part of the UK's "critical national infrastructure", according to a report out today.
Business advisory firm Deloitte says, in No More Them and Us, that private suppliers to the government collectively produce some 6% of GDP and employ 1.2 million people. Spending on private goods and services is highest in local government, which spends £42bn, 40% of the total expenditure, on external contracts. This is followed by health - £24.2bn a year - followed by £17.9bn in welfare and benefits, £10.1bn in defence, and £7.3bn in education.
A cause for celebration on the part of private firms benefiting from these considerable sums of money? Up to a point. As we noted last weekthe employers' organisation, the CBI, has a long-standing complaint about the cost of pitching to government and Deloitte also wants more than just government money: it wants the government to improve the way it deals with suppliers.
"As budgets and supplier profitability contract during 2010 and beyond, the margin for error on both sides will shrink, and thus intelligent supplier management will be critical," is how Deloitte explains it.
Mike Turley, head of Deloitte's public sector practice, says the sheer volume of public services now being delivered by private companies makes the relationship between the public sector and its private sector suppliers "a big deal".
Now that it is, he says, "increasingly recognised" that public services do not need to be delivered by public sector bodies directly, there should be more attention paid to how the public sector deals with its suppliers and this is a matter for both politicians and managers.
"There's a political drive, but not necessarily a party political drive," he comments. "It's look at service in different ways. The split of commissioning from provision might encourage more innovative approaches."
Turley emphasises that the responsibility of both buying and providing public services, whoever actually delivers them, continues to rest firmly with the government. The report puts forward three specific proposals. It wants the government to:
• Improve the way it manages contracts. The report recommends independent compliance testing and assurance and where appropriate, enforcing contractual penalties
• Improve risk management. "Public bodies need to retain high quality data on the vulnerability of suppliers and their business models to changes in operational costs and other risk factors. Importantly, risk management needs to be applied effectively through the life cycle of contracts not just at the start."
• Strengthen ways of preventing supplier failure, including a monitoring regime to provide early warning of supplier stress, establishing processes and procedures in the event of the need to intervene in a supplier emergency.
These are reasonable demands. More interesting, though, is the sense of momentum around a possible change in government. A year on from the financial crisis of 2008, with its demands for greater regulation, private companies, both through reports like this and through bodies like the CBI, feel they can have some influence over the way the government does business.
