The government needs to make use of private companies to fulfil various tasks of state from security to railways to telecommunications, but the method in which these companies are selected continually fails.
One recent and notable failure from the tender process was the selection of security firm G4S to provide security for the London Olympics. As was widely reported, G4S failed to even manage to employ sufficient staff to even begin fulfilling their roles and the government were forced to draft in military personnel at very late notice. This catastrophic failure is certainly partly due to poor management, but the bidding process is also to blame, where companies are forced to “overbid” in the quality and services they can provide at a price substantially lower than their competitors whether that is financially possible in the real world or not.
The government appears to consistently select companies simply based on their claims that they can provide are minimal service at the lowest cost rather then attempting to select the best value bid. Sometimes selecting the lowest cost bid may provide the best value for money, but often ministers should look deeper – will this company provide the best long-term value to the public? Just look at the hugely over-budget and still non-functioning NHS digital patient platform for a waste of public funds by selecting the wrong company for the task.
Things get even more complicated when putting services out to tender includes the private company paying the government for being able to provide those services such as with train operators mobile phone network providers. The government sees a bid from one company that appear to show more money in the bank for them – but the process forces companies to regularly overbid. With the rail networks, both GNER and National Express overbid for the East Coast Mainline, and subsequently went bust – leaving the taxpayer left to fill the financial hole and to provide the investment promised by these now defunct companies.
Today we hear that Virgin Trains has failed to secure the franchise for the West Coast Mainline having successfully run the service for the last fifteen years. They have had many problems in that time including many problems with delays, but few would argue that the service along the west coast is now significantly better than when Virgin took over – something which can be demonstrated by the doubling of their passenger numbers which have now overtaken those on the east coast. The government put the franchise out to tender as it should, but they have selected FirstGroup rather than a company with a proven track record on the service. It may be that FirstGroup will provide the best value for money to the public and I hope they will, but with the government’s track record I share Richard Branson’s fears.