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Outsourcing’s here to stay; let’s make it better

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A guest LGC briefing by Dr Joshua Pritchard, researcher at the public services thinktank Reform.

In March 2019, the chief inspector of probation, Dame Glenys Stacey, pulled no punches when introducing her annual review of probation services. “The probation model delivered by Transforming Rehabilitation [where private companies are contracted to deliver probation services] is irredeemably flawed,” she announced. “It has proved well-nigh impossible to reduce probation services to a set of contractual requirements. Professional probation work is so much more than simply a series of transaction, and when treated in that way it is distorted and diminished.”

Dame Glenys’s comments strike a chord with criticisms of how other public services have been designed and delivered in recent years. From the Ministry of Justice bringing HMP Birmingham back in-house after it fell into a “state of crisis” under G4S, the troubled and expensive contract between Capita and the British Army for recruitment services, or the collapse of Carillion in January 2018, outsourcing failures in a £284bn area of public spending have garnered thousands of column inches, tweets, and headlines.

Local contacting authorities have not been exempt from these debates. The service provider Amey recently had its multi-decade, multi-million-pound service contracts with both Birmingham City Council and Trafford MBC come under scrutiny amidst calls for the infrastructure support services to be brought back in-house. The five-year UnitingCare contract with Cambridgeshire & Peterborough CCG was similarly ended after only eight months, leading to complaints the NHS had “wasted millions of pounds of taxpayers’ money”. Numerous other cases have seen local authorities struggle to contract out services effectively or securely, resulting in costly and inefficient partnership arrangements.

Yet the issues raised in these cases should not be used to suggest that all outsourcing is bad and that the solution is to bring everything back in-house. Such demands are not only irresponsible (and impossible in terms of both cost and capacity), but also ignore the billions of pounds spent annually on effective and efficient outsourced goods and services. These include many items which cannot be produced in-house such as aircraft carriers or MRI machines, or services which can be delivered by private providers at significantly better value for money without risk for vulnerable citizens, like back-office services such as catering or cleaning.

Rather than throwing the whole system out and starting again, the focus should be on improving current symptoms in response to current failings. Fundamental changes to the outsourcing process, underpinned by clearer guidance and training, are proposed in Reform’s latest report, Please Procure Responsibly. In particular, three key areas are identified as being fundamental to any improvements in public procurement for local contracting authorities.

The first is the “make or buy” decision, where commissioners are asked to consider whether a product or service can be delivered at better value for money in-house or by external providers. The more complex the service or the more vulnerable the citizens it engages with (such as probation or healthcare), the less likely it is that outsourcing can improve quality or deliver savings . Conversely, the outsourcing of simple back-office services (like facilities management) or the production of complex goods (like vehicles or machines) are more likely to deliver savings at higher quality . The use of clear “contracting out” criteria (as outlined by the Institute for Government) and an indicative “make or buy” flow chart as included in Reform’s latest report would support commissioners throughout this process.

The second area for improvement is in designing and negotiating effective contracts. As was highlighted by Dame Glenys in her review of probation, problematic financial arrangements such as unsuitable payment models or unrealistic penalties can have severe consequences for contracting authorities, providers, and citizens. Amey, for instance, was recently fined £48m by Birmingham City Council. Similar incidents within the Capita-British Army contract saw Capita receiving the maximum penalty credits per month for failing to meet targets for months in a row without signs of improvement, demonstrating that strong punishments do not necessarily prevent poor performance. Greater emphasis is needed on effective contract management to encourage an efficient, cohesive, and flexible working relationship.

Both of these areas can be improved by better training and skills. Two existing organisations – the Public Service Transformation Academy and the Association for Public Service Excellence – already offer programmes, training sessions, and peer-to-peer networking to aid local authorities. Greater investment in training and a shift to digital online learning courses, which provide low cost alternatives to the face-to-face lessons, is critical for procurement and contract management officers.

As Reform’s report argues, it is challenging for government to keep pace with the changes to service design and delivery methods. Getting the fundamentals of training and upskilling right, therefore, provides greater flexibility and expertise in responding to new demands and preventing outsourcing failures. The aim should be to not only avoid outsourcing failures, but to fundamentally improve when and how suitable goods and services are outsourced in the first place.

Dr Joshua Pritchard, researcher, Reform


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