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Public service outsourcing is not inevitable; and should never be the default option

Friday February 5th, 2016

Over the last decades, under successive governments, public service outsourcing has grown in value, scope and political profile. So, will this trend continue?

There have been some notable failures and terminations over recent years, including: G4S and Serco’s contracts with the MoJ for tagging services; the early termination of the Somerset-based joint venture contract South West One; the Hinchingbrooke hospital debacle; Bournemouth Council bringing a range of services back in-house; and the recent call from Andy Burnham for the termination of all young persons G4S prison contracts following reports of abuse of offenders. The list could go on …

John Tizard

John Tizard

However, in spite of these and other high-profile cases, the outsourcing trend has continued. Why?

As outsourcing has become more mainstream, its advocates have used a variety of arguments in its favour but have rarely been consistent. I can recall arguments such as the need to: increase capacity; reduce costs; leverage investment; address underperformance; source scarce expertise; transfer risk (although actually, ultimate risk is hardly ever transferable); tackle poor industrial relations; and in some specific cases, extend choice to service users. And sometimes, it has been solely for ideological reasons.

There is in fact little evidence of the impact of outsourcing, which implies there is a compelling case for a national evidence-based enquiry into its impact and its future. Meanwhile, the available evidence suggests at best a very mixed picture and nothing like as glowing a success as some marketing presentations or political speeches might suggest.

Some early outsourcing initiatives led to significant savings (either through productivity improvements or deep cost-cutting) with variable impact on service quality and employment conditions. However, conditions and expectations have changed. The public sector has increasingly and unsurprisingly become more efficient and innovative itself; and the public mood has changed as it now faces much greater financial challenges.

The reasons why prudent public sector leaders should question the efficacy of traditional outsourcing include:

  • there being no automatic guarantee of service improvement and/or cost reduction, especially if there is a desire to sustain employment conditions for staff
  • procurement processes take a long time (possibly 12-18 months) at a time when budget pressures are immediate; they also cost money and eat up senior officials’ time when they could be doing something else
  • contracts tend to be inflexible and/or expensive to change
  • there is a thirst for greater transparency and accountability but both can be easily undermined by poor outsourcing
  • recent high-profile cases have raised questions about the effectiveness and even honesty and ethics of some providers and this is compounded by the public and some politicians understandably questioning the assumption that markets and the business sector are always best
  • there are serious concerns about public sector procurement and contract skills and competency
  • in a period of uncertainty, long-term contracts result in budget inflexibility forcing cuts into other areas and distorting future political choices
  • if the expertise of a public body is outsourced, there is little professional capacity to both monitor contracts and, in the case of failure, step in
  • the public sector is increasingly seeking collaborative relationships and integration of public services to address ‘cross-cutting’ services, when outsourcing can too easily lead to a fragmentation of service provision
  • public sector procurement processes often result in only a few serious bidders and a lack of competition with some markets being dominated by a small number of providers

Many in the public sector see an opportunity to deliver public services through collaboration with the voluntary and community sector, public agency shared services and new relationships with service users and communities. And many public bodies have demonstrated their ability to redesign and deliver services better themselves.

Outsourcing should never have been a public leader’s ‘default’ option, and it most certainly should not be so today.

 

John Tizard

Online: www.johntizard.com
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Check out our training partner, PASS (Procurement Advice Support Service), which runs relevant procurement training events for the public and private sector. To view the brand new schedule of events, click HERE.

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