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After Carillion: The future of local service outsourcing

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Outsourcing is facing some fundmental challenges as a result of changing public perceptions.


  • Melbourne Barrett, chief executive, Basingstoke & Deane BC
  • Nick Golding, editor, LGC (roundtable chair)
  • Sandy Hopkins, chief executive, East Hampshire DC and Havant BC (now chief executive, Southampton City Council)
  • Patricia Hughes, joint chief executive, Hart DC
  • Sarah Lawson, policy researcher, New Local Government Network
  • Paul Martin, chief executive, Richmond upon Thames LBC and Wandsworth LBC
  • Louise Round, chief executive, Tandridge DC
  • Geoff Tucker, commercial director, Norse Group

It was only in the second half of 2018 that Patricia Hughes started to receive complaints from residents about Hart DC’s revenues and benefits services being outsourced. Given that the contract has been in place for more than a decade, it was rather revealing. “It’s interesting that the public narrative is changing,” Ms Hughes, joint chief executive at the council, said.

It’s a shift for which the collapse of Carillion can take some credit. When it was liquidated in January 2018, the outsourcing firm had debts of £1.5bn and had been holding more than 400 UK public sector contracts. For taxpayers the cost of its failure is expected to run to £148m.

But could the cost of this high-profile collapse go further than that? Might it affect local authorities’ ability to see outsourcing as a viable option? And what might the future be for existing arrangements? To explore some of the answers to these challenging questions, LGC gathered local government experts for a roundtable debate, held in association with Norse Group.

For Geoff Tucker, Norse’s commercial director, the recent citizen feedback in Hart sounded very familiar. “We have joint ventures with about 16 local authorities, so we get quite a lot of direct feedback, and it has in recent months become highly politicised. That is to say, the residents are telling the members – their representatives – that they don’t want councils dealing with the big outsourcing companies,” he said.

He suggested the roots of this mistrust could be traced back to events which predate the Carillion situation. “I think it’s partly the impact of the various difficulties that companies like Capita and Serco and G4S have had, and of course Carillion. But I think it also is informed by a general mistrust of big companies.

“And it goes right back to the collapse of the banking system 10 years or so ago, and big companies not paying their taxes, and chief executives being overpaid, and I think all of that has fermented this feeling that big companies can’t be trusted. The members are responding to that. The number of contracts that have been let in the past year or so is down by about 30% I think.”

Research from the New Local Government Network thinktank also shows a change in attitudes. “Through our leadership index, which is a survey of council mayors, chief executives and leaders, we did see that 39% – so a sizeable minority – were looking to outsource less,” said Sarah Lawson, a policy researcher at the organisation.

But not everyone around the table felt that shift was always attributable to Carillion and its peers. Paul Martin, chief executive at Richmond upon Thames LBC and Wandsworth LBC, said the latter – in continuous Conservative control since 1978 – has had a long-term policy of “market testing services when it believes there is a viable market to test”. He said nationwide developments have had little impact on that attitude, while problems with existing contracts have done.

The residents are telling the members that they don’t want councils dealing with the big outsourcing companies

Geoff Tucker, commercial director, Norse Goup

“We’ve had one poor experience of a big outsource in the past couple of years, which has probably had the single biggest impact in the corridors of the town hall around outsourcing,” he said. He added that this was “not in any sense a theoretical thing, but more practical evidence of one contract that we’ve let that hasn’t gone particularly well” for various reasons. “That may be about the way in which we specified it, but it’s been a disappointing performance, and difficult for us in that particular area.”

His comment introduced themes which would prove central to this roundtable. First was the idea that, in most instances, councils are being pragmatic about partnering with other organisations for service delivery. The ideological debate no longer rages. Second was the belief that the way in which councils and outsourcers work together must evolve.

Ms Hughes at Hart DC, for instance, reported that the basic principle of outsourcing was “no longer a difficult argument” for her members. She said the real question now centred on an alignment of culture and ambitions between councils and partners – or, more accurately, a lack thereof.

“I’m a very small district local authority; I’ve got the ability to make decisions on a sixpence. I’m blessed by that, [and] by having very open-minded councillors who will look at challenges and run with it. But then I’m faced with an outsourcing organisation that isn’t culturally aligned with me and doesn’t see where I’m trying to go,” she said.

“We’re fairly neutral as to who’s delivering that public service on our behalf. I have no problem with who it is, as long as the outcomes are right. But it’s trying to get people to have the same tvision and same direction as you, and that’s much harder when you’re working with a major outsourcer who, frankly, has got loads of different partners who are possibly all looking at things in subtly different ways.”

Questions were also raised about traditional outsourcers’ ability to respond with innovation and agility to the challenges now facing councils. “Local government has been the worst hit part of the public sector since austerity and councils have had to be resourceful, innovative and creative about how they find their way through that,” Mr Martin said. “I’m not sure how far that process of creativity and innovation has been initiated by the private sector.”

For Sandy Hopkins, traditional outsourcing-based organisations have the furthest to shift to offer this sort of agility. “I think that journey is being driven by us, the buyers,” said Ms Hopkins, chief executive of East Hampshire DC and Havant UKBC at the time of the roundtable, and now chief executive at Southampton City Council. “But I think there are emerging smaller organisations that are filling that space and that’s actually changing the industry.”

Her choice of the word ‘industry’ was deliberate. Ms Hopkins contends that the traditional distinctions between public and private sector are of little value in a world in which most councils have a mixed economy approach.

I have no problem with who it is delivering the service, as long as the outcomes are right

Patricia Hughes, joint chief executive, Hart DC

“I tend not to talk about sectors if I can help it. I’ll talk about the industry I’m in, which is public services, because actually that’s an easier way to try and describe it. ‘Sectors’ is a bit old fashioned in my head, because actually it is so blurred and so mixed,” she said.

“How do you start to explain that Havant delivers services for East Hampshire through memorandums of understanding and inter-authority agreements, and through certain legislative provisions that then have agreements with private or public sector ventures? It gets so complicated, it’s easier just to talk about the industry you’re in, and that’s what I do.”

And what of the term ‘outsourcing’? Is that useful in the current context? For Ms Hughes, the answer is no. “I think we need to all just think about the shared service agenda,” she said. “[In Hart] we’ve essentially outsourced our community development to our local CVS [council for voluntary service]. It comes back to where I think we may end up with the outsourcing model, which is actually going to niche markets and niche models.”

It’s a vision of the future shared by Louise Round, chief executive of Tandridge DC. “There are new models of delivery and social enterprises and community interest companies able to deliver very local services when there is an appetite to move away from those big multinational or huge national organisations,” she said.

“It seems to be an opportunity for us to now think about really commissioning services very locally, probably not for your waste contract, but certainly some of your prevention services, [and] your community development. We’ve got parish councils right across the district, and they’re certainly talking to us about taking on some of our old people’s community services as well.”

This leaves the traditional, larger outsourcing organisations needing to change quickly. “You almost wonder whether larger organisations are going to develop the skunkworks division: the innovation lab where they’re working with us in a collaborative way, creating proof of concept and then scaling up,” said Melbourne Barrett, chief executive of Basingstoke & Deane BC.

“How are we going to get into that space where we’re trying different things but when they’re tested you can then scale and get the economies of scale and resilience?” he asked.

You might see really disruptive things like a group of local councils buying a company because they want to shift the model

Sandy Hopkins, chief executive, East Hampshire DC and Havant BC (now chief executive, Southampton City Council)

Ms Hughes suggested this question is one councils should be asking of themselves as much as they do of external partners. “I do wonder why we, as a public service, have not come together and delivered some of the answers ourselves,” she said.

“Local government is such a massive, massive sector. Just think about websites. We all have websites, 90% of all of our websites will provide exactly the self-same information,” she said, asking why they did not collectively go to one company to provide this across authorities. “We are probably all talking now about chatbots, looking at AI, and looking at all forms of technical advantage with smart homes. Why are we all doing that individually?”

It was a point built on by Ms Hopkins, who offered some extreme possibilities for the future of outsourcing and partnerships. “You might see really disruptive things like a group of local councils buying a company because they want to shift the model. They think it’s got a good basis, but they’re quite assertively putting in a bid to buy it out because they can see that they will be better at delivering and providing that.”

Conversely she wondered if a private business could buy out the council’s functions completely. “I don’t know – that’s really wild – but you could separate democracy from delivery, couldn’t you?” she said. “At one point, my directive as chief executive was in 10 years’ time to have achieved a maximum of 20 staff in this organisation, and everything else moved out to other entities. That was the ideological position of the cabinet I was working with at the time.

“It’s not beyond the realms of possibility that you would have a really extreme set of politicians who would say we want a company to come in and deliver the whole lot, the whole package. I don’t know. Those things are a bit wild, but they’re two extremes.”

What seems probable is that outsourcing will remain integral to local government provision – if something which must continue to evolve (and possibly find a new name). The sub-heading of the New Local Government Network’s recent research report on the topic was Rethinking Partnerships Between the Public and Private Sectors, and it was that rethinking which Ms Lawson emphasised was the main finding.

“We had detailed conversations with various people within councils, but also those working in the public sector at a national level, and the big thing that came out of that was the need for a wider cultural shift in how the public and private sector work.” In short: Carillion is in the past, and now it seems it’s time to build a new future.

Roundtable sponsored by Norse Group

Norse Group

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Readers' comments (1)

  • No ideological problem with outsourcing is not surprising with the make up of the round table. Where are the Labour controlled councils and why no involvement of a trade union representative? It is astonishing that in this report there is no mention of quality - an aspect that is often a cause of dissatisfaction!

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