As spending cuts bite in local government, the trend for joint ventures with private service providers is bound to increase
With public sector budgets facing big cuts after the general election, a number of signs suggest that 2010 could be a big year for outsourcing. What was once an option might well soon become a necessity.
At the annual lecture of the Business Services Association in February, shadow Treasury minister Mark Hoban called for a fundamental reappraisal of the commissioning and provision of services. He urged Whitehall departments to ask themselves: ‘Should we be doing this or can someone do it better?’
Irrespective of the election result, it looks as if government entities are already asking themselves this question. Essex County Council’s appointment of IBM to transform its services caught the headlines towards the end of 2009. And the words ‘outsourcing’ and ‘supply contract’ are increasingly being replaced with ‘transformation’ and ‘strategic partner’. But are these new phrases simply temporary buzzwords, or should we be adding them to our favourites?
As any good lawyer will tell you, the evidence is a good place to start. The momentum for strategic partnerships between the public and private sector has been building for a while, with several joint ventures set up between industry and local government. For example, the Unity Partnership, involving Mouchel, Agilisys and Oldham council, provides property, exchequer, ICT, highways and customer services to the local community in a £260m, ten-year deal.
Likewise, Access (Serco’s joint venture with Glasgow City Council) is designed to realise 20% efficiency savings by improving ICT services and rationalising property. It is reported that, over the ten-year deal, around £70m of savings may be achieved.
Both these examples demonstrate that strategic partnerships can benefit the community as well as the contracting parties.
While the scope of such arrangements can differ, the underlying theme remains the same: improve services, identify efficiencies and generate savings on a long-term basis. In straight outsourcing arrangements, the relationship of customer and supplier can sometimes push the motives of the contracting parties into their respective fighting corners. But with a strategic partnership, interests can be more aligned.
For the public sector, the success of the partnering vehicle can generate significant value for money and community benefit. For the private sector, it can be profile-enhancing and help to generate income via additional third-party contracts. Perhaps most importantly, risks and rewards are shared.
So is continued growth of the strategic partnership sector a certainty for this coming year and beyond? As Hoban made clear at the BSA lecture, government departments need to move away from short-term fixes and towards long-term strategic planning. The CBI clearly supports this view. In a recent pre-Budget letter to the chancellor, the business lobby said the government could save more than £130bn by 2015/16 by addressing inefficiencies in its supply chains and procurement and workforce management.
Private support service providers are gearing up for the change too. Defence services firm VT Group was recently acquired by Babcock in a £1.3bn deal; Capita reportedly made 12 acquisitions last year; and Carillion has indicated that, in light of private sector construction decline, it will be well placed to provide more support services, such as facilities management, to public sector clients as their budgets come under pressure.
The messages from the BSA and the CBI follow the Treasury’s October 2009 consultation paper on public-private joint ventures, which stands as a weighty 102-page hint to local authorities of the benefits of such partnerships.
If Cardiff City Council’s proposed £1.5bn partner procurement goes ahead, it looks as if the hint is being taken.
Danielle Lodge is an associate at City law firm Reynolds Porter Chamberlain
