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Who owns the companies that provide our national services?

Written by Guest on Monday, 31 August 2015

Guest blogger Ian Makgill looks at who owns the companies that provide our national services and discusses key steps that can make the analysis of company ownership a routine and efficient process.


  

Ian Makgill is the Founder of SpendNetwork

 

 

Last month the Prime Minister announced that the UK Government would “examine whether there is a case for insisting that any non-UK company wishing to bid on a contract with the UK Government should also publicly state who really owns it”.  

So how many procurement contracts are actually won by foreign companies? A simple enough question you may think… However, this review is likely to highlight just how poor the UK’s contracting data really is.

In my view, there are some clear practical problems to overcome with contracting data which may be helpfully addressed alongside this forthcoming review.

The first and most significant problem is that we simply do not know which companies are winning tenders. Assuming that we only consider tenders with values above the EU threshold of €130,000, in the UK 40% of these do not have a matching Contract Award Notice telling us who actually won the tenders. Of the remaining 60% just 30% have a contract award that matches the original tender notice; the remainder have to be matched manually rather than electronically.

But that’s not all; there’s also the problem of framework contracts. These contracts are a useful procurement mechanism that reduces administration, but they are also frustratingly opaque. Frameworks allow multiple suppliers to be bound into an overarching legal agreement without any confirmed promise of work to follow. The problem is that despite rules stating that the public sector authority should publish contract award notices when they use of these frameworks, very few choose to do so. In fact, details are so hard to come by that the Crown Commercial Service relies on suppliers themselves to identify which public bodies are using their framework contracts.

Even if we are lucky enough to get a Contract Award Notice, it is not easy to determine which legal entity won a tender because buyers usually publish the name of the winning supplier’s brand rather than a precise company name or a company identifier. Why is this important? Well, in the case where a winning bidder is given as ‘BAE Systems’ we cannot know precisely which company won this contract; there are 58 companies registered in the UK with `BAE Systems` in their name, any one of which could be owned by a foreign entity.

This problem isn’t insurmountable, but it does require effort. In the work of SpendNetwork we routinely have to match supplier records with company names. We’ve found that much can be achieved through aligning multiple data points, such as the supplier’s name, the postcode and the type of contract being purchased. For example, we can confidently link a contract awarded to ‘Mazars’ for public sector audit services to ‘Mazars Public Sector Internal Audit Limited’. We can also cluster data, so that if a buyer awards a contract to ‘BT’ for services, we can look at other contract awards and determine that the BT subsidiary most frequently awarded services contracts is ‘BT Global Services’ and link the contract accordingly.

Once a legal entity has been identified, determining the ultimate legal owner can commence. Ownership is stipulated in the public accounts held by Companies House, but corporate structures are complex and finding the ultimate owner can mean following a chain of ownership that is many links deep. Sadly, there’s no structured data to allow us do this programmatically. The data is held in PDF documents, many of which are too poor in quality to OCR scan them, which means that a human is required to read the information, before each link can be made. Only when each link up the chain has been followed and correctly documented can we know whether a company has foreign ownership.

Clearly there are significant challenges that face anyone trying to determine ownership routinely. However, much can be done by focusing efforts appropriately. Although government uses a large number of suppliers (over 200,000 suppliers in central and local government), the same names appear again and again. Over 15% of the estimated £230bn procured by government goes to fewer than 100 individual resources-resources-businesses. Proactively mapping the structures and ownership of just 1000 companies could quickly ensure that the UK’s most important suppliers are trading appropriately.

Below we outline three key steps that the UK Government and devolved authorities could take to make the analysis of company ownership a routine and efficient process.

  1. Make contract awards mandatory. In a bid to overcome the corruption that was dogging the Slovakian Government, parliament passed a law invalidating any public contract that did not have a publicly available Contract Award Notice. Whilst arguably we face far fewer problems than the Slovaks, the use of frameworks and the UK’s poor record of publishing Contract Award Notices mean that we should consider implementing something similar.
  1. Use company identifiers in data. Buyers should use the correct identifiers in their procurement data including Contract Award Notices and spending data. Suppliers are required to provide this data in their tender submissions and VAT invoices so it is easily accessible to purchasing authorities. Publishing the data would improve efficiency and counter fraud.
  1. Require key contractors to submit their accounts electronically. The challenge of determining ownership is much easier when companies opt to submit their accounts electronically. Those suppliers that wish to earn large sums of money from government should be ready to meet higher levels of transparency than companies that have little or no trade with government.

Conclusion

The new consultation into procurement transparency is likely to unearth a series of problems with the public sector’s contract data, not least of which are problems with identifying which companies have won bids.

However, the simple remedies to these problems mentioned above would go a long way to improving the data both for this consultation, taxpayer value-for-money and to investigate fraud and corruption.

 

  1. There is not inference that any of the companies mentioned in this article are in any way involved in the movement of illicit funds, their names are simply provided as examples to demonstrate the difficulty of the process to identify the supplier appointed to complete a contract.

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Read 699 times Last modified on Tuesday, 24 November 2015 11:48

Guest

The TI-UK blog features thought and opinion from guest writers as well as TI staff. Any opinions expressed by external contributors do not necessarily reflect the views of Transparency International UK.

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