Leading article: When private companies need public scrutiny

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The resignation of Rod Aldridge, the millionaire businessman exposed this week as one of the Labour Party's secret benefactors, throws the spotlight on Capita, the company he reluctantly leaves behind. The IT firm has prospered since Labour came to power in 1997, mainly as a result of government contracts worth a total of £2.6bn. Last year, it was named as the preferred bidder for a 10-year IT pensions contract with the Department of Work and Pensions.

Until yesterday, it seemed that things could only get better for the company Mr Aldridge founded back in 1984. Capita's turnover has risen tenfold since 1997. And last year it made a profit of £177m. Even allowing for Capita's shrewd positioning to take advantage of the IT revolution of the late 1990s, this has been an extraordinary success story.

But this is a story of interest to far more people than just Capita's shareholders. This company is now effectively responsible for a huge range of public services, from collecting TV licence fees to administering the Criminal Records Bureau. Capita boasts that it touches the lives of 33 million people in the UK. One obvious question this raises is why the number of civil servants continues to rise when so much that used to be handled by the state is now performed by the private sector. Another pertinent question is whether the taxpayer is getting value for money from Capita.

It is not as if the company has a spotless record. Under its control, the Criminal Records Bureau has been bedevilled with technical problems. Faulty Capita software resulted in chaos in the schools admissions system last year. The firm was criticised by the National Audit Office for its mismanagement of Individual Learning Accounts in 2000, an ill-fated government scheme to encourage more adults into education. Despite all this, the public-sector contracts continue to roll in.

Of course, the central accusation - that Mr Aldridge loaned money to Labour in exchange for government contracts - is almost impossible to prove. It is most unlikely that there was ever any kind of a formal agreement along these lines. And both parties can point out that the awarding of contracts takes place under independent scrutiny. But it is, nevertheless, peculiar that Mr Aldridge should have chosen to resign so soon after his generosity to Labour was revealed.

In the short term, Mr Aldridge's hasty departure is confirmation of the Prime Minister's folly in attempting to keep these loans secret. Even if the award of all these contracts was entirely proper, by keeping the Labour Party's considerable debt to a dozen wealthy businessmen hidden, Mr Blair has created the impression of sleaze at the heart of government.

Mr Aldridge claims he resigned because he does not want to invite unwelcome scrutiny of Capita or undermine its reputation by associating it with a public scandal. But companies that bid for government contracts cannot have it both ways. Firms like Capita cannot charge millions to the Government and yet expect to keep their affairs free from public scrutiny.

Private tendering is set to increase in the future. The likely next Prime Minister, Gordon Brown, has been one of the driving forces behind the expansion of public private partnerships. There will continue to be a huge amount of money to be made by private firms from government contracts for the forseable future.

Just as a light must be shone into the murky waters of party funding, so too must the processes by which lucrative government contracts are distributed be made transparent. And those that prosper through the public purse must expect the same degree of scrutiny as any government department.

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