Bronwen Maddox: The case for saving outsourcing

Companies will fail, but that doesn’t mean we must abandon outsourcing entirely – it’s a matter of picking the right circumstances, says Bronwen Maddox


PA

By Bronwen Maddox

18 Apr 2018

It’s hard to find cheerleaders for outsourcing at the moment. Carillion, the company that collapsed in January, become shorthand for the problems that may follow from contracting private companies to do work previously done by the public sector. In March, the Commons Public Accounts Committee of the House of Commons launched an excoriating attack on the record of outsourcing in the probation service.

The £3.7bn Transforming Rehabilitation programme had not succeeded in supervising prisoners or helping them restart their lives as had been planned, the report found. “The so-called ‘rehabilitation revolution’ is showing worrying signs of becoming a contracting catastrophe,” said Meg Hillier, the Labour chair of the committee.


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The PAC’s criticism points to real failings in the way that some outsourcing has been conducted. The Labour opposition, which has vowed to reverse at least some of it, has succeeded in making it the subject of live public debate. There is good reason, it is true, to take stock of what has been an experiment over more than 30 years in shifting the boundary and the relationships between public and private sectors. But the record shows that while some outsourcing doesn’t work, some does. Some clearly achieved the original aims of prompting greater efficiency and bringing in outside expertise. It would be a great pity if the good were thrown out with the bad, for reasons of ideology alone.

"Companies do fail, and that failure does not represent the failure of the idea of outsourcing"

When people talk about outsourcing, they might be talking about any one of a wide range of activities. Catering, construction, schools or hospitals built under private finance initiative contracts – the word has become an umbrella to cover all kinds of projects and services, amounting to more than £100bn a year. For a start, that is too big to be unwound, whatever the political fashion. The question is how to distinguish what works from what doesn’t.

At the Institute for Government, we have argued that outsourcing tends to work well if three conditions are satisfied. There should be a market in the service; it should be possible to measure good performance and the service provided should not be integral to the identity of government itself. Catering, by broad agreement, has worked well. Hospital cleaning looked as if it was ideal for outsourcing, but high standards of cleaning turned out to be so central to a hospital’s own performance that it has generated more problems than expected. Probation services have not, in many respects, worked well, as the PAC noted. It is hard to measure the difference between a good or bad probation service, whether in supervision or rehabilitation, and yet the results are very different.

Most of all, perhaps, the outsourcing of probation offends against our third criterion: it is too intricately bound up in people’s sense of what government does, or should do. This was the subject of much of the discussion at a recent event on outsourcing and procurement at the IfG, with Rupert Soames, CEO of Serco, the outsourcing company, and Gareth Rhys Williams, the government’s chief commercial officer (and formerly the CEO of PHS Group, a provider of outsourced workplace services). Although panellists defined it differently, there was general agreement that there is a tranche of services that the public would generally expect always to be provided by government. One described this as the times “when it involves taking key decisions on people’s lives”.

There was also agreement that government had got better over the past couple of decades in writing the contracts themselves – too good, some contractors would argue, complaining that their margins have been driven down too low. If there are weaknesses, they are more in the management of the contracts. The Carillion episode has shown that there is a need both for flexibility – a sophisticated interpretation of the contracts on both sides to allow for unforeseen circumstances – but also a sceptical and penetrating challenge by government of a company’s financial health.

Companies do fail, and that failure does not represent the failure of the idea of outsourcing. The essential point for government is that it is able to protect the public by enabling services to carry on.

The IfG is beginning a new, major project on outsourcing this summer. If you would like to contact us with your views, please write to nick.davies@instituteforgovernment.org.uk

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