The new All Party Parliamentary Group on outsourcing is a welcome addition to the public services debate, but it must take care to engage with the right arguments
The establishment of an All Party Parliamentary Group on outsourcing is to be welcomed and the National Outsourcing Association is to be congratulated. However, this new forum must be more than a cheerleader for public sector outsourcing.
It has to critically examine and analyse the evidence of outsourcing in the UK and wider public sector markets. It has to critically challenge the premise that outsourcing is a panacea that always delivers financial savings and improved outputs. Equally it has to understand what contributes to effective outsourcing and what impedes it; when outsourcing may offer a positive solution and when it is unlikely to do so; and above all it must require the public sector and the outsourcers alike to disclose the necessary data to enable serious and considered evaluation of this business model.
Increasingly public sector managers and politicians are not turning to outsourcing as the silver bullet to address the extreme budget pressures that they face. There are many reasons for this including inertia and an ideological resistance in a minority of cases. For others the reasons are more rational. Some see mixed evidence of the effectiveness of outsourcing (a matter that the new APG must address). There is also a view that the procurement process is lengthy and expensive – in direct financial terms and in the opportunity costs of executive time. For others there is a concern that long term outsourcing contracts are inflexible and will lock up further tranches of their budgets at a time when they require financial elasticity.
Many of the traditional applications of outsourcing in the public sector have applied to ‘back‑office’ support and transactional services and whilst any savings in these activities is to be welcomed they represent a small proportion of the total savings required given the government’s public expenditure plans and cuts. The significant areas of expenditure in local government, for example, are in children’s and adult services, not support services. Traditional outsourcing is unlikely to offer the necessary savings in these key services and anyway most adult social care is provided already by the private and third sectors.
The public sector wants a new relationship with the private sector and indeed with the third sector – though the NOA Group will be primarily concerned with the private sector outsourcing industry. It is looking for genuine sharing of risk and reward; for profit share; open book accounting and transparency of financial and operational performance; and flexibility in contracts to reflect uncertainty and the almost certain future changes in most public services. It may also be seeking investment to enable change to occur and contracts based on payment for long‑term results linked to wider social goals. There is a political consensus to build the capacity and delivery capability of the third, voluntary, community and social enterprise sectors. Public sector clients are looking to private sector partners to support and facilitate these developments but are outsourcers ready and able to respond?
The agenda for this new APG can be very exciting and interesting or it could fall into the trap promoted by too many in the outsourcing industry of saying that more traditional outsourcing is the answer to whatever question the public sector poses especially the challenge of dramatically reducing public expenditure.
Outsourcing has progressed over the last few decades both in terms of contractual models and public service areas to which it is applied. These are dynamic processes and likely to continue to evolve. However, a radical revolution not evolution is now required.
The Outsourcing APG should turn its early attention to the issue of evidence of effectiveness and analysis of the models available but then quickly move to address issues such as
- contracting for social outcomes and wider public value not simply better service delivery
- flexible contracts and incentives for innovation
- the enablement of localism and personalisation when services are outsourced
- genuine risk and reward sharing between outsourcers, public sector clients and providers
- improving procurement to make it quicker, cheaper, more effective and more accountable
- strengthening staff and trade union involvement in procurement processes
- ensuring full transparency and accountability of provider and commissioner when public services are outsourced
- new forms of investment including social investment and how they can compliment outsourcing
- the role of social investment for outcomes
- the role of outsourcing firms as service integrators involving SMEs, third and social enterprise sector organisations in service delivery; and in building their capacity
- ensuring that staff terms and conditions are protected when services are outsourced and staff can share the commercial gains of outsourcing companies
This list of issues to be addressed is not exhaustive but we have to break away from the mould of arrogant outsourcers stating that bigger easier contracts are what the public sector needs. They almost certainly are not what is required. The private sector is perhaps more challenged by the contemporary agenda than the public sector – and it has no divine right to contracts.
Martyn Hart and NAO have taken an initiative which we should applaud but only if it is ready to offer some real challenge. Otherwise the APG will not fulfil its potential and it will not serve the public interest.
The reality in the public sector is far less who will provide public services than how they can and will be funded.
Therefore, reading the recent PF Opinion articles from Martyn Hart, Tom Symons, Mark Hellowell and Paul O’Brien, and reflecting on the Open Public Services White Paper I am struck by how much attention is given to who provides public services rather than their purpose and funding.
We must not allow ourselves to be caught up in the wrong debates and fail to address the contemporary needs of the public and the public sector acting on its behalf. The new All Part Group on Outsourcing must be mindful of this imperative.
