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John Tizard: Are the right questions being asked if local government outsourcing is growing?

Friday September 9th, 2016

The simple answer must be “No”!

John Tizard

John Tizard

The value of outsourcing contracts signed by UK local authorities in the first half of 2016 increased by 84% despite a dip in the value of overall public sector spending. This was revealed by the recent arvato UK Outsourcing Index. The Index also reported that the value of outsourcing contracts signed by councils in the first six months of this year increased to £684.9m.

This is a surprising figure given the scale of expenditure reductions being faced by local authorities; and the many questions that are being asked about the efficacy of traditional public service outsourcing to the business sector. It is very unlikely that outsourcing will produce the level of cost reductions required – and if it does there may be significant adverse implications for the quality of service. The ‘easy big savings’ of early public outsourcing are less likely today as local authority services are considerably more efficient than they were a couple of decades ago. There is also a recognition that lengthy and complex procurement processes are expensive and have significant opportunity costs when senior officers should be focused on wider change and improvement programmes. Most individual authorities do not have the in-house expertise to manage such procurement processes so there are additional consultancy costs. And what is more, in too many procurement processes there are too few bidders and little competition.

During a period of rapid and continuous change long-term contracts, unless very carefully crafted, can lead to inflexible services and lock up significant proportions of an authority’s budget, which in turn can result in deeper cuts in other areas of the budget.

However, there are alternatives to outsourcing; and certainly to traditional price-driven outsourcing.

Good local authority leaders recognise this. They understand that there are many ways of securing quality and value for money. They are also seeking wider social value from public services especially in a period of austerity. When public service provision and procurement are integrated with local economic and social development there can be a massive win for local authorities and communities.

They will also be aware of the public’s concerns about the ethics and behaviours of some companies; and even if these companies are not themselves directly involved in public services the public concern remains a powerful political consideration.

The list of the alternatives should never be exhaustive; new models should always be welcomed. Innovation and challenge are important.

Some local authorities are establishing trading companies; some are sharing services with other local authorities and more widely within the public sector; some are supporting staff and sometimes service users to create co-operatives and social enterprises; and some are collaborating with the voluntary and community sector using grant funding to develop and sustain services.

Other authorities are continuing to manage services directly. Some local authorities have brought services back in-house. Of course, this can be more difficult after many years of outsourcing and the resultant loss of internal professional and leadership capacity. In-house provision is not the same as ‘no change’ or ‘no reform’. There are many examples of very innovative and effective in-house services.

That said it is inevitable that some local authorities will continue to outsource some services, especially but not exclusively services such as IT. They may be seeking specialist expertise and/or investment from a business sector provider. And, of course, some local authorities will be pursuing outsourcing for ideological reasons.

The reasons for considering outsourcing will differ but the fundamental questions that political leaders and senior officers should be asking before embarking on a costly procurement process should apply to every local authority and every service.

Local leaders should look at what others are doing and learn from their experiences too and not assume that everything has to be ‘invented’ here – it is always good to avoid the mistakes of others.

Engaging local stakeholders including staff, trade unions, civil society, citizens and service users, local authority leaders should ask questions such as:

what outcomes are being sought?
what options have been considered to achieve these outcomes?
if outsourcing is the favoured option, why?
how have key stakeholders been involved in these considerations?
are the objectives, potential benefits and risks for the proposed outsourcing clear?
do these objectives align and contribute to wider social, economic and environmental policy goals?
does the local authority have the capacity and competency internally to undertake a complex procurement process – or to manage consultants – and to manage any resultant contracts?
what will be the opportunity costs of the procurement process?
how much time and money will the procurement process consume including external advisors and internal staff time?
what has been the result when other councils have outsourced these services and what are the lessons?
what is the capacity, appetite and performance record of potential bidders – and what are the chances of a competitive bidding process?
has there been pre-procurement market analysis and discussions with potential bidders?
how will contractors be held to account with transparency of financial and service performance; their internal business model, tax and remuneration policies and ownership? Will there be a contract break clause if any of these change significantly?
is the procurement process going to attract local providers especially SMEs, social enterprises and the local voluntary and community sector – and should the local authority consider a market making programme linked to its wider social, environmental and economic policies?
how will the bid evaluation process take into account:
views of service users, staff and their unions, and other local stakeholders including councillors
bidders’ values, ethos, track record and employment practices
social value considerations
a holistic assessment of the economic, social and environmental impact on the local community and economy rather than a simple short-term financially driven assessment of savings?
will it be possible to contract in ways that foster innovation and change and minimise financial and service inflexibility?
what is the risk assessment for the proposed approach and how will risks be properly allocated between contractor and council?
will politicians be proud of the contract and its impact; and consequently willing to defend and promote it?

Every council will need to develop its own questions in the context of its political preferences, its objectives and its wider place agenda. But every council needs its own set of questions.

Public service outsourcing should never be the default option but I worry that the recent growth in local authority outsourcing suggests there has been too little questioning and too little challenge. If this is so the local public interest has not been served well.

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