Should private and third sector service providers be subject to the same ethical standards as public officials?
That is the view of the Committee on Standards in Public Life in a recent report. The report considers the scope of the public services market – around £187bn is now spent by the public sector on goods and services commissioned from external suppliers and the rate and scale of outsourcing of public services is increasing as austerity measures and demographic pressures increase. The landscape of commissioning and delivery is growing ever more complex as new hybrids like academy trusts, CCGs, staff-led mutuals and arms length companies take responsibility for services.
The Committee’s central finding is that the ethical standards for those operating in the public sector should now have application to all those delivering public services, whether they are private sector or voluntary sector providers. Specifically, the Seven Principles of Public Life developed by the Nolan Committee should apply to them:
Selflessness – officials should act only in the public interest
Integrity – officials should not take decisions in order to gain material benefits for themselves
Objectivity – officials must take decisions fairly, impartially, without discrimination or bias
Accountability – officials must submit themselves to scrutiny
Openness – officials should act and take decisions in an open and transparent manner and not withhold information unless there are clear and lawful reasons for so doing
Honesty – officials should be truthful.
Leadership – officials should exhibit these behaviours themselves and actively promote them and challenge others’ non-compliance.
The Committee has recommended that the Cabinet Office puts in place an action plan to ensure these ethical principles are reflected in all procurement procedures (an assessment of the ethical code of suppliers and a certificate of compliance may be required); that contractual performance standards should reflect these principles and that ethical compliance should be embedded in training, induction and professional development among service providers.
The Committee was prompted to look into this issue on the back of recent high profile scandals involving large outsourcing companies, in particular problems with the Work programme and offender tagging contracts.
I don’t think anyone would disagree that high ethical standards are essential for anyone who wants to supply services funded by taxpayers’ money. The question is how best to implement this. There is a risk that the behaviour of a few miscreants spawns a whole new area of regulation and compliance for SMEs, charities and social enterprises, with an attendant cost.
If we look in detail at the 7 Principles, we find that some of them may be easier to apply to non-public sector bodies than others. ‘Honesty’ should be a given, leadership and accountability should not pose a problem. But what about ‘selflessness’, ‘objectivity’? An office holder in a private company (including a community interest company) owes a legal duty under the Companies Act 2006 to promote the success of the company (section 172) and to avoid conflicting interests (section 175); similarly, a charity trustee must always act in the best interests of the charity and its beneficiaries. What happens when the interests of the taxpayer conflict with those of the shareholder or the charity’s beneficiaries? Which duty should take precedence? How in practice will the office holder in the service provider be able to demonstrate the duty of integrity if he has received a bonus for delivering good contractual performance? Compliance with the duty of openness also raises some difficult questions: in a competitive market: some commercial information needs to be kept confidential to preserve the competitive dynamic. There are already separate moves afoot to try to extend the Freedom of Information Act to private and third sector organisations who are providing services in the public interest. This will require these bodies to put in place compliance systems with attendant costs. The lines between public and private functions are increasingly becoming blurred.
The Committee also refers to the need to bring in punitive measures and financial penalties for those who fail to adhere to high ethical standards. For these to be legally watertight, there would need to be legal certainty about their application and an appropriate evidential burden.
I don’t think anyone disputes the need to encourage high standards of ethical behaviour across all sectors – whether that be public, private or third sector. Indeed, post banking crisis, most business schools have placed a greater emphasis on ethics in their curriculum. Does a knee-jerk response to a handful of scandals merit a programme of reform of procurement, new contract clauses and a system of financial penalties? This will need to be carefully thought through if it is to avoid imposing new cost burdens on service providers at all levels. The rush to impose a hasty solution risks being seen as a political cloak for ideological opposition to outsourcing or alternative delivery models in general. We await the new Government’s response to the report with interest.