Atos and Capita could soon become part of ‘shadow state’, warn MPs

The government must improve the way it contracts out services such as disability benefits assessments to the private sector, according to an influential committee of MPs.

The public accounts committee said that an absence of competition for companies such as Atos and Capita – both of which assess disabled people for eligibility for benefits – had led to the growth of “privately-owned public monopolies which have become too big to fail”.

Margaret Hodge, the Labour MP who chairs the committee, said the government was in danger of creating a “shadow state” of outsourcing companies that was “neither transparent nor accountable to parliament or to the public”.

Her comments came only days after a report by the National Audit Office confirmed that lengthy backlogs had built up in the first few months of Atos and Capita taking on the personal independence payment (PIP) assessment contracts last year.

Atos has also been heavily criticised for its performance in assessing disabled people’s “fitness for work”, since its contract began in the autumn of 2008.

And the companies that secured contracts on the government’s Work Programme have been criticised for focusing their efforts on those who are closest to the jobs market, while leaving many disabled people “parked” with little support.

Speaking at a media briefing on the committee’s report on contracting out public services to the private sector – a sector now worth nearly £100 billion a year – Hodge said the “huge” Atos PIP contract had produced “appalling” delays in assessing claimants.

She said: “I have had so many cases of people who have had their assessment horribly delayed. It’s not working. The delays are appalling.”

Her committee’s report says the failures of outsourcing giants such as A4E, Serco and G4S has exposed serious weaknesses in the government’s ability to negotiate and manage contracts with private companies.

She said there was a “cultural failure across Whitehall”, and added: “The government has to improve its competence and capability. They have simply got to up their game.”

If it failed to do so, she said, it will become “the biggest advert for renationalising public services”.

Hodge said smaller companies wanted to compete for many of the contracts, but the costs of bidding, excessive bureaucracy, and the complexity of the contracting process were putting them off.

She also suggested that the Department for Work and Pensions was in “danger of meltdown” if it failed to “get its house in order”.

She pointed to Atos pulling out of the contract to provide work capability assessments, the huge PIP backlogs, and problems with the government’s Work Programme, all of which have impacted on disabled people.

Hodge said the “veil of secrecy” over contracts for such services “has to be lifted”, and she criticised DWP for its “reluctance to be transparent” about its contracts with private companies, which she said “has to be in part a reluctance to be honest about the failure to deliver the services”.

Among its recommendations, the report calls for the Freedom of Information Act to be extended to cover government contracts with private companies, and for such companies to be forced to open their books up to scrutiny by officials for most contracts.

Hodge said that private companies that wanted a “sustainable future in the public domain” needed to develop higher ethical standards, such as not lying about their work, introducing proper whistleblowing policies, and paying their fair share of tax.

She suggested there could be a test of whether a company was “fit” to be given taxpayers’ money to deliver a public service, in the wake of scandals concerning companies such as Serco and G4S, which for years had charged the Ministry of Justice for electronic tagging services they were not providing.

And she said the government had to be tougher on the sanctions it imposed on companies that failed to perform after winning public contracts.

Atos, Serco and other outsourcing giants are “good at winning contracts, but they are less good at running services”, she added.

14 March 2014