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John Tizard: Resetting the default as ‘in-house’ public services

Tuesday August 27th, 2019

In July the Labour party launched its new policy for local government services – ‘Democratising Local Public Services: A Plan for Twenty-First Century Insourcing’ is both radical and timely (http://labour.org.uk/wp-content/uploads/2019/07/Democratising-Local-Public-Services.pdf).

John Tizard

John Tizard

As the title suggests, the policy advocates that local authorities should set the default for their services as in-house publicly managed and publicly owned. A Labour Government would legislate to reset the compass which for the last several decades has promoted outsourcing as government’s preferred model of public service delivery, with many local authorities of all political persuasions adopting it.

Over the last few decades since the Thatcher Government there has been a growing trend for local authorities and indeed other parts of the public sector to outsource services to companies, many of which are major corporations. Successive governments have promoted this model of service delivery, with the Conservative-led Coalition Government in its Public Services White Paper in 2013 arguing that the presumption should be to outsource all but a very small number of public services.

Some local authorities assumed that competitive tendering would lead to lower cost, higher quality and innovation. The evidence is that this has not always been the case – indeed the three objectives may not be mutually compatible in many cases.

Until recently, when services were outsourced too many local authorities took what they perceived as the easy route when contracts reached their end, procuring new contractors or often re-contracting the incumbent provider.

However, over the last few years a growing number of local authorities have called a halt and have begun to insource previously outsourced services. These have included Conservative as well as Labour controlled councils.

The public service outsourcing model has been seriously challenged by Carillion’s collapse and a litany of high-profile failures. Council leaders and senior executives have also questioned the outsourcing model because:

  • the promised savings and service benefits are often not realised
  • of a realisation that risks, especially the ultimate risk of continuing critical services, cannot be outsourced – as Carillion demonstrated
  • long-term contracts limit flexibility to change budgets and service priorities – this a serious issue in a period of austerity and changing demand and expectations
  • the transactional costs of procurement and client contract management are not insignificant
  • of a desire to ensure that public service delivery realises wider policy goals such as local community wealth building, strong public accountability and integrated services – all of which are more difficult when services are outsourced
  • very many procurement processes turned out not to have been competitive, with few bidders; all too often the same companies bid each time, with resultant market domination and some companies ending up being ‘too big to be allowed to fail’
  • of a desire to work in partnership with voluntary and community organisations (and sometimes local social enterprises and SMEs), rather than with major corporates
  • public and political opinion has changed

Labour’s policy is reflecting this reality and the increasing emphasis on ‘insourcing’ and in-house provision.

Labour is not simply arguing for a return to a pre-1979 position but to reset the dial so that public services are more democratic and accountable and are responsive to local places and local people.

Labour aims to have eliminated nearly all local authority outsourcing within five years (though the policy excludes social care services). This may be ambitious given the length of many existing contracts and the capacity of the public sector to deliver every service, especially specialist services such as elements of IT. Labour’s policy is that outsourcing should only be considered when there is an overwhelming public benefit for doing so.

I would add that any local authority considering outsourcing would need to fully engage stakeholders including staff, trade unions, users of the services, voluntary and community groups and the wider public in such decisions, and would have to publish the business case and be accountable for this and the consequences.

If outsourcing is considered there should be an assessment to address issues such as service quality and the holistic financial, social, economic, equality, political and environmental impact for the local economy, community and wider public sector. And if services are outsourced some strong, enforceable public interest requirements should be included in the contract.

Labour also recognises that there are a range of models of socially owned and socially managed public services, with opportunities for local authorities to partner and sometimes contract with voluntary and community organisations, social enterprises and co-operatives and sometimes socially driven SMEs. In respect of the VCSE sector, relational partnerships will often prove preferable to competitive tendering and overly complex contracts. I would contend that such partnerships are not outsourcing in the traditional sense.

The Labour policy guidance rightly suggests that in many cases the most appropriate time to bring services back in-house will be when contracts reach their end of life. However, as it also recognises, in some cases it may be possible and desirable to end contracts early. Therefore, I would argue that every significant contract should be reviewed.

Such reviews should involve key stakeholders including staff, trade unions, service users, their representatives and advocates. A review could recommend early termination, contract revision – where this is feasible – or that the contract should run its term. In such a review a council would wish to consider factors such as:

  • when the contract expires and whether it makes sense to let it run its course – and how during this period it can be rigorously managed
  • how well the contract is performing, including the public perception of its performance
  • the scope for contract renegotiation and the cost benefit/disbenefit of any such renegotiation
  • the legal and any other rationale for early termination, the potential financial liabilities of such termination and consequently the cost benefit/disbenefit
  • the capacity of the authority to transfer the service in-house and then manage it

I would hope that all local authorities would adopt a clear policy on public service delivery models and set the default as in-house provision or another form of social provision, and commence reviewing all their major outsourcing contracts. There is no need to wait for legislation as many councils are already doing.

The 2013 White Paper is rightly heading for the archives.

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