The rush to find savings in expenditure is likely to lead to many public agencies making the wrong judgements about outsourcing to the business and third sectors. Why? Because there is already growing anecdotal evidence that local authorities and other public bodies are:
- unilaterally seeking to change contracts and pay less for specified services, especially where the provider is a third or community sector organisation
- drawing up procurement strategies which look all too similar to some of the worse aspects of Compulsory Competitive Tendering (CCT) – short-term contracts awarded to the lowest price with little regard for outcomes and quality
- considering how they can contract services or pursue other means that will enable employers to reduce the terms and conditions for the staff employed to deliver public services – for example, asking if there may be ways of avoiding Tupe, the Best Value two-tier code and continuing decent pension arrangements
- encouraging staff to establish employee-owned and led mutuals to bid for and to deliver public services without consideration as to how these will be capitalised, or supported to secure managerial, entrepreneurial and other expertise and contracts that will enable growth and sustainability
These and similar actions may seem attractive to those facing 25-35% cuts over the next four years. However, such actions will have consequences that those pursuing them are likely to regret fairly quickly.
At the same time as local authorities and government are promoting the concept of the ‘Big Society’ and greater roles for third and community sector organisations, there is more than irony that they are actually cutting grants and contract payments to these very bodies. Organisations will struggle to sustain service standards and others will be forced to close down. These will hardly be the conditions to attract people to create new organisations. There will be less money available to support set ups and to build the capacity of the sector. Consequently, a key element of the Big Society could be at risk before it is even off the drawing board.
Neither will business sector providers that cannot make a reasonable profit be able to sustain service standards. And if a public body acquires a reputation as a poor client or one that fails to recognise the commercial imperatives for suppliers, it is likely to find that procurement exercises produce poor responses and the potential benefits of competition are not realised.
The evidence from the CCT era was that although the policy produced a necessary shaking up of some public services, it all too often led to low-price, short-term contracts. These easily resulted in adverse changes to employees’ terms and conditions; a ‘two-tier workforce’; high staff turnover (some employer induced) and worker de-motivation (not desirable during a challenging period of change); and reduced service quality.
Many responsible and progressive companies did not want to bid or be part of what were often hostile markets; and they did not wish to be engaged in a race to the bottom. Of course, there were always some companies ready to bid even if they were under-capitalised, inexperienced and all too ready either to reduce service quality further and/or to seek additional payments post-contract. Many of them are not around today.
Any thought of avoiding Tupe should be resisted and anyway would fall foul not only of UK but EU legislation. That some people are even raising the issue is worrying and if government were minded to listen, this concern would rightly turn to dismay and horror. I foresee attempts to separate pension entitlements from Tupe rights – currently pensions are legally excluded from Tupe, but custom and practice usually means that they are part of the deal.
Is this really what the public sector and more importantly those who use and rely on public services want to return to? One sincerely hopes not, but unless there is a more strategic, long-term approach to the use of competition and the engagement of the business and third sectors as service delivery contractors such a return is likely.
Local authorities and other public sector bodies face enormous financial pressures. Of course, they will rightly want suppliers to act as genuine partners and assist them in finding financial cost savings through: productivity improvements; better service re-design; and new ways of delivering services and engaging with service users and communities; and in some circumstances, to accept smaller profit margins. For existing contracts with any provider, from whatever sector, the latter will be negotiated on the basis of some wins for both parties and not unilaterally imposed by the client. Contractors will have to accept that money is tight for their public sector clients and should be seeking to find ways to support them, but few will be willing or able to do this in return for no reciprocal contractual changes.
In respect of the third sector and new social enterprises the public sector and government will have to recognise the need to make capital available to underpin start-ups, enable bids to be made and finance cash flow especially in those contracts where payments are based on long-term outcomes. It is naive to assume that this sector will miraculously and spontaneously rise to meet cuts in public expenditure. The sector can and will play a critical role but needs to be nurtured, while its limitations as well as its potential must be understood.
My advice for any public body considering using the business or third sector to deliver more public services is to work through the following ten steps:
- be very clear about the outcomes being sought – having engaged users, staff and other stakeholders
- identify all the options available including: in-house; partnering; facilitating employee and/or management-led enterprises; introducing individual user budgets with self-purchasing; interim risk-based management; in-sourcing; and contracting – to secure these outcomes at an affordable price
- set and apply a clear criteria for ‘go without/make/buy/partner’ decisions
- be clear about why and how you will engage with suppliers including market development and sector capacity building in respect of the third and social enterprise sectors
- research supplier markets and what others in your sector are doing – too many coming to the market at the same time will diminish competition – use sector intelligence
- understand what motivates potential suppliers and how these can be matched with the client’s objectives
- understand how suppliers engage with and treat their workforces
- determine clear and achievable if testing outcome targets
- apply ‘intelligent’ procurement principles, avoiding lowest-price procurements and also over-complex and over-sized tender documents and processes that effectively deter new entrants to the market from bidding
- adopt contracts terms that are mutually viable for client and provider and that recognise the current fiscal conditions
The alternative is likely to be chaos with unsustainable arrangements that will prove to be more costly in the long term – at the very time when money is scarce and communities and citizens require cost-effective and responsive public services.
John Tizard is director of the Centre for Public Service Partnerships (CPSP@LGiU)
