How the Covid-19 Pandemic Changed Relations Between the Government and Public Service Contractors

In recent years successive UK governments have implemented administrative reforms to build competitive markets for the delivery of public services, with more than £350 billion spent annually on services ranging from rubbish collection to building submarines.

In response to the Covid-19 pandemic, the government took the unprecedented step of procuring over £44 billion worth of privately provided goods and services and incorporating private providers into the heart of the emergency response (traditionally the purview of the public sector).

To achieve this, the government used emergency legislation to remove competitive tenders and reduced reporting processes. In doing so, it substantially re-orientated its relationship with private providers, moving from a position of a principal granting its authority to deliver services to something more akin to a partner organisation leveraging private resources. This risks a permanent change in government-provider relations, to the detriment of the UK's contracting out framework.

Putting ‘contracting out’ into context

Contracted out services were popularised throughout the global north in the 1980s by proponents of Thatcherism and Reaganomics.

When combined with more recent austerity-driven politics, this model has delivered a rapid expansion in the UK's public service markets, accompanied by a lowering of service delivery costs, with larger companies frequently able to cross-subsidise operations and out-bid smaller competitors. This has been mirrored by an expansion into new areas of public service that were previously delivered by publicly funded bodies, such as medical assessments for benefits claimants. Despite an initial lack of expertise, market leaders such as Serco, Mitie and Atos have expanded their operations from single sector beginnings to cover a variety of services.

By 2019, just under forty large companies delivered nearly a quarter of all government spend on procured services and goods. If able to dominate, the size and influence of large providers could make them virtually immune from financial failure or meaningful sanctions. The sudden arrival of the pandemic saw existing models of contracting re-drawn at pace, resulting in an unprecedented shift in the power dynamic between government and providers.

An emergency footing during Covid-19

The past twenty years depicts a primarily one-sided relationship between government and private providers, with the government implementing new frameworks to delegate authority and control its agents. But decisions made during the pandemic demonstrate how swiftly these frameworks can be dismantled, lending weight to the criticism that some providers are becoming semi-autonomous partners in public administration, ensuring future governments are increasingly dependent on market actors to deliver public services.

From January 2020, the government made expansive use of emergency powers to procure and deploy private resources, dispensing with the rigidity of formalised tendering processes and using informal ties to enlist private provider delivery of novel services. In the first six months of the pandemic response, 1,301 of 1,644 of Covid-related contracts were provided by direct award. Notable examples include a six-month contract to Serco in March 2020 to provide emergency call centre services for NHS Scotland, and a nine-month testing services contract with Hologic Ltd.

Ministers made use of existing relationships with suppliers by rolling over or modifying existing contracts rather than launching new tendering rounds. The value of these extended contracts was far from immaterial, with the National Audit Office identifying 216 contracts (valued at £1.4 billion) awarded by December 2020 under existing frameworks as part of the test and trace programme alone. Seemingly, suppliers rather than government were being courted for work; an inversion of the competition principles that have defined the UK's contracting out model up to this point.

Reduced competition was accompanied by a dramatic reduction in public procurement transparency. This created undue financial and commercial advantages for those with a close relationship with the government, as well as a loss in opportunity for competitor public service companies. And by removing pilot requirements, the government significantly reduced its ability to develop ex post controls to manage providers delivering these new services, which in turn blunted its ability to measure the quality of the services or set expected outcomes.

A decisive next decade

In taking this route, the government did more than temporarily move from a control-competency framework based on granting authority to one more akin to enlisting services, but also deepened the growing co-dependence between the state and private agents. As a result, it will have little choice but to call on private actors if a similar response is needed again.

The ambition showed by the government to expand the UK's public services market and bind the actions of contracted services to national priorities through a National Procurement Policy Statement adds further weight to the view that providers are set to operate increasingly as partners, rather than arms-length contracted agents, in the running of the UK's public administration machinery. The growth of the UK's public services markets and dependence by the state on private suppliers should be treated with caution, especially in the context of another national emergency.