Taking advantage of the outsourcing benefits

OutsourcingOnly a short time has passed since I last gave my thoughts in these pages – but it’s fair to say that in that period, we’ve seen significant changes to the way the coalition government views outsourcing. If my previous article aimed to explore the benefits that outsourcing could provide to the public sector, then clearly, it’s now worth taking a closer look at exactly why the government has decided on such a drastic U-turn – and whether or not it is the right decision.

Back in October of last year, chancellor George Osborne unveiled some of the most far-reaching cuts to public spending in living memory, to the despair of many who wondered if cutting funding to public services was the right way to save money. The solution, or so it appeared, was for the government to turn to specialists in the private sector to deliver them, at a reduced cost.

The government’s decision to open up the procurement process and encourage SMEs to bid for contracts seemed to provide further evidence of its commitment to using outsourcing suppliers in the private sector, and it seemed that they were preparing themselves to embrace multi-sourcing as a viable solution.

A risk
However when, at the start of May, a document was leaked to the press, following a meeting between cabinet office minister Francis Maude and CBI director John Cridland everything changed. The document suggested that “wholesale” outsourcing of public services was a “political risk” which the government was unwilling to take, and referred to widespread use of suppliers in the private sector as “unpalatable”.

So how have we found ourselves in this situation? How have we gone from a situation where outsourcing was seen as the only viable alternative to the public sector to one where the government sees it as unpalatable to the extent that it would rather consider using social enterprises and charities to deliver services?

PR war

It’s clear that the “risk” alluded to in the leaked document in question has been a key part of the government’s decision to backtrack, and it’s no coincidence that the sound of those banging the anti-outsourcing drum has got noticeably louder since the turn of the year. Indeed, the PR war that’s been waged against perceived dangers in outsourcing has been particularly noteworthy. In my last article I spoke about the episode of Channel 4’s current affairs documentary series, Dispatches, which aired on 14 March with the aim of debating whether outsourcing suppliers in the private sector were the true beneficiaries of the government’s spending cuts. This was, in my view, a very good example of how some worked extremely hard to undermine outsourcers, and outsourcing in general.

Screened on the eve of a major report on public-sector pay was announced, the programme, presented by financial journalist Ben Laurance, highlighted the multimillion pound pay packages earned by heads of private organisations responsible for providing public services, and questioned whether they were fully deserved. Crucially, by scaremongering, and forcing private sector companies such as government services company Serco, to defend the salaries of its top managers, the programme served to undermine the private sector’s ability to adequately provide these services. This is despite the fact that, until the recent release of the leaked government documents, private outsourcing companies offered the only credible way forward to those who fear that they will be affected by the cuts. It’s also interesting to note that of all the articles written and television programmes aired with the aim of questioning the role of outsourcing in the public sector, none seem to have been able to offer a compelling, sustainable alternative.

Efficiency gains

On the face of it, it is, of course, easy to understand why Francis Maude could see the use of wholesale outsourcing as a political risk, particularly given the somewhat hysterical, knee-jerk reaction we’ve seen from some quarters in recent months. However, I do think it’s worth raising the question of how big a political risk it will be for the coalition government NOT to use private sector organisations as much as they can.
Consider for a moment the political ramifications if, over the course of the next few years, the government discovers that not only has it not been able to make significant savings as a result of its determination to look for alternatives to the private sector, but that public services have also become less efficient as a result?

To look at this another way, does the government expect social enterprises and charities to be able to deliver the same level of cost efficiencies as the private sector? It’s worth bearing in mind that private sector organisations are typically specialists in their field, with experience of managing what can often highly complicated contracts. Which is to say nothing of the fact that the fact that the private sector is usually able to call on significantly greater resources to deliver these services.

Cotton wool

A good example of this is a report I read last year, which referred to the NHS’s requirement to source 47 million cotton wool balls. Tellingly, the NHS were extremely doubtful that the order could be delivered on time through their usual procurement channels, and so turned to an international logistics group, to which the NHS had outsourced its supply chain. As a result, the NHS was able to source the cotton wool balls ahead of schedule, achieving a cost saving in excess of £200 million in the process.

Of course, it would be foolish to suggest that outsourcing is the only solution, and it’s clear that charities and social enterprises have a role to play, where it is prudent for them to do so. But this is, in essence, my point. Should the government really pander to the opinion of a select few who have deemed that outsourcing is unpalatable? Or should they instead take time to evaluate what’s needed, and evaluate what the best course of action is? After all, as long as this government remains committed to cutting public sector spending, it’s clear that we need to find a way to deliver these services in a way which will maintain efficiency but also keep costs down. If there’s a way to achieve this then, in all honesty, who cares if this means using suppliers in the private sector?

The road ahead

It’s clear that the road ahead is going to be a difficult one for everyone with a vested interest in both outsourcing and the public sector, and it seems clear that the battle lines are being drawn between two distinct factions; those who recognise the value that outsourcing can provide, and those who question whether or not the private sector should benefit from cuts to public sector spending. So what can we expect to happen?

Perhaps we’ll see local authorities that are free from the mandate of central government setting the example in their use of outsourced services. Of course, there are those such as Suffolk City Council who have decided to pause plans to outsource services to the private sector, but more generally, I think we can expect local government to take advantage of the benefits outsourcing can provide.

If that proves successful, then who knows? Perhaps we’ll see yet another U-turn from the government before too long?

For more information
If you’ve got an opinion, then we’d love to hear from you at one of the NOA’s public sector special interest groups. For more details, please visit our website at www.noa.co.uk or call us on 020 72928680.

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