A recent survey of local authorities and their response to the spending pressures suggests that there is a surge towards considering more outsourcing. This was perhaps, inevitable, given the severity of the cuts demanded by the government and as outsourcing companies continue to claim their inherent ability to reduce costs and price to the public sector client by at least 20%.
Local authorities need to be wary and appropriately sceptical of the sales pitches. This is not to say that savings aren’t possible or that all the boasts are overblown. However, the traditional outsourcing claim of 20%–30% cost and price reductions may no longer apply (if they ever did) given that local government has itself become more efficient over the past decade. Not all authorities and their services start from the same cost and quality base-line, and the cost of the outsourced service will be closely correlated to the quality of the resultant service. Anyone can buy cheap but that is not the same as buying smartly or in a sustainable manner.
My advice to local authorities and others considering outsourcing is to pause and reflect before leaping. Be clear about your objectives, and ensure you have considered all the options first.
The starting point should be strategic commissioning – identifying the outcomes sought and the finance available. The identification of outcomes and priority demands on scarce money needs to involve service users, staff (and their trade unions), and the wider community. Alternative providers, including 'in-house' teams, should be invited to offer proposals on service delivery and indicative costs/prices before any decision is taken as to which to adopt. It is conceivable that the 'right to challenge supply' proposals being promoted by the government may also contribute to this important phase in the decision making.
As local authorities and others consider opening their services up to more competition and to a greater plurality of supply, they should reflect on the recent Office for Fair Trading report: Choice and Competition in Public Services – a guide for policy makers. The evidence, as supported by the OFT, suggests that one cannot automatically assume that greater competition in public services always leads to better outcomes and/or lower costs.
Indeed, the evidence, especially during the period of Compulsory Competitive Tendering (CCT), is that low, price-driven procurement of services led to very disadvantageous terms and conditions for staff, (and of course the current government has started to remove key regulations designed to protect staff when services are outsourced) – and to falls in service quality. Therefore, local authorities would be well advised to avoid seeing low-price outsourcing as a panacea to their budget challenges.
There many ways in which to secure the delivery of services. Outsourcing is but one of these. The models include:
- in-house managed services
- local authority trading companies
- shared services between local authorities and other public sector bodies
- services procured from the third, social enterprise, voluntary and community sectors including 'spin outs' from the public sector
- services provided through grant-aided support to the voluntary and community sector
- outsourcing to, and strategic service delivery partnerships with, the private sector
- joint ventures with the private sector, including share risk and reward arrangements
- in-sourcing external advice but with some risk transfer to the adviser
- plus a whole array of permutations on the above
Many services will be personalised, with service users directly purchasing them from providers – e.g. social care – with the local authority role becoming increasingly one of market manager and service regulator.
That there are so many options demonstrates that outsourcing is not the only solution that should be considered. There are many examples of authorities securing productivity improvement and/or cost reductions through: redesigning their directly managed services; redesigning services across public agencies (Total Place/Community Budget approaches); introducing forms of co-production with individuals and communities and direct payments; sharing services with other authorities; and partnerships with the community and voluntary sector.
So my advice is to look at ‘all’ the options before selecting any specific one.
There is a need to be clear about the objectives being sought – for example, cost reduction with or without service improvement or reduction; capital investment; service transformation; greater choice for users; or some permutation of these.
And in considering these options, local authorities should apply some clear criteria based on the political values, principles and policies of the local authority. These are political choices – not managerial or technical matters. However, it is essential to have the necessary commissioning, procurement and client skills and capacity.
Such criteria will include issues such as:
- the balance to be struck between service quality and price/cost
- employment standards, including terms and conditions, trade union recognition and staff involvement
- location of the activity
- ensuring a local supply chain
- the promotion of third sector, voluntary sector and SME involvement in public service delivery
- whether the service should be procured collectively or through personalised arrangements
- what if any application of user charging, the level of charging and protection of fairness and equity
- any preferences in respect of the type of provider and can these be secured given the procurement regulations
Such criteria recognise that public services contribute a wider public value than just a service to their users. A local authority will wish to pursue this wider public value and therefore, at a time of severe financial restraint, will have to make choices. Make no mistake – these are political choices, about what services should be available to local people and businesses; on what terms; and who should provide them; and how.
John Tizard is director of the Centre for Public Service Partnerships. This piece is based on a talk he gave to a CIPFA Performance Improvement Network conference on March 29
