“Charbonneau Loops” and government IT contracting

Sean Boots

‘Charbonneau loop’ turns out to be one of those terms which we didn’t know we needed until it was called into existence, but draws attention to something all too easily overlooked. It describes a form of moral hazard, which is simple, obvious, and largely invisible:

Charbonneau Loops ultimately happen when the “pool” of companies (receiving public sector contracts for a given type of work) is small enough that the same companies are sometimes overseeing, and sometimes overseen, by their peers in that same pool. Even if they never actually coordinate with each other – even if they don’t have any conversations whatsoever – they’re all incentivized to be a little bit less critical of each other as a result.

The concept takes its name from an investigation into construction corruption in Quebec, but it can clearly apply to sectors other than construction and far beyond Quebec. It can also be extended beyond the simple two role form of the loop. The story of Grenfell Tower is a multi-player version where a complicated set of public and private sector organisations carefully positioned themselves not to identify risks and not to be resposible for resolving them.

The question, of course, is what can be done to break the loop and restore – or perhaps create – conditions in which the institutional incentives act differently, supporting effective challenge, rather than muddled complacency. The simple answer, set out in the post, is to strengthen in-house capacity and to increase the pool of suppliers. But as so often, the harder question is how to get there from here, and how to avoid letting progress be undermined by regulatory revolving doors which create a form of personal Charobonneau loops embedded in the more institutional ones.

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