The Institute for Government has called on permanent secretaries and other senior officials to do more to improve commercial skills in departments due to “repeated outsourcing failures”.
In a review of the government’s outsourcing policy, which followed a number of high-profile failures including the collapse of major supplier Carillion, the think tank called for an enhanced role for permanent secretaries in boosting government skills to agree outsourcing deals.
The review, based on more than 50 interviews with current and former government officials, suppliers, academics and industry experts, found senior politicians had consistently overstated how much money is saved by outsourcing services, but also warned that implementing a Labour Party policy to bring all services back in-house by default would be a mistake.
The report said government's outsourcing of public services to the private or voluntary sector had been expanded over the past four decades. Beginning in local government, successive governments have since extended outsourcing to areas including frontline services and major IT projects, and more recently to probation and employment services, as well as private financing of construction projects.
The IfG found outsourcing had worked best in the initial round of support services first outsourced in the 1980s and 1990s, such as waste collection, cleaning, catering and maintenance.
The initial round often managed to save around 20% of annual operating costs while maintaining service quality. However, the picture is murkier for more complex services, according to an red-amber-green success rating.
Private prisons are cheaper to run and have introduced innovations, including in how staff treat prisoners. They perform better on some quality metrics and worse on others, but the introduction of competition has improved performance in public prisons. Outsourcing has provided extra capacity in the NHS and, in some cases, improved the performance of public hospitals, but there is a lack of comparable data on cost and quality, and some case studies show damaging failures.
But a probation drive that began in 2013, has “failed on every measure” and hindered ex-offenders’ efforts to rebuild their lives. These failures led to the scrapping of the Ministry of Justice’s controversial probation reforms this year.
“The heavy costs show why government should be cautious about extending outsourcing of frontline services and only do so when it is confident it will work,” the IfG said.
The report set out a number of recommendations for government to improve provision, with a particular focus on the role of permanent secretaries to ensure departments adopt best practices. They should also work closer with government commercial chief Gareth Rhys Williams to strengthen commercial skills and capabilities, the report said.
Perm secs should work with commercial and HR directors to ensure that officials have the time and resources needed to implement the government’s outsourcing playbook of contracting standards. The playbook includes requirements for pilots in any new outsourcing, the development of key performance indicators, and living wills in cases where the outsourcing provider fails. It also requires government to undertake a make-versus-buy analysis to determine if services should be run internally.
Department chiefs should also work with directors to ensure that contract managers are involved in contract negotiation – the lack of which Rhys Williams told CSW last year was equivalent to playing football without goalkeepers. The IfG said Rhys Williams should commit to publishing an annual progress review of the playbook, beginning in 2021.
The authors also called on officials to be made more accountable for contracting decisions. They said select committees should be able to recall ministers and officials who have subsequently left their post to answer questions about the decisions made during outsourcing projects.
However, overall the report concluded that bringing all outsourced services back in house “would end 40 years of continuity”,
While outsourcing has suffered a string of recent failures, the evidence does not support the view that outsourcing overall has failed, IfG senior researcher Tom Sasse said.
“A lot of confusion continues to crowd the debate over outsourcing. Labour’s policy of bringing services back into government hands by default risks throwing away the benefits of outsourcing. But at the same time, the government must address the causes of repeated outsourcing failures.”
A Cabinet Office spokesperson said: “This government will always champion the private sector's vital role in delivering our public services. Over the past year we have made great strides in improving how we work with the private sector, including introducing an outsourcing 'playbook', which has been welcomed by industry and bringing in new rules to ensure government suppliers pay their bills on time.”