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Elections: What Can Outsourcers Expect from a New Government?

13 March 2015

Can outsourcers expect significant change after 7 May? Or will it be business as usual?

Asking service providers – big or small – which hue of post-election government would be best for outsourcing or, more tamely, what outsourcers should expect from a new government, is like asking someone to reveal their deepest, darkest secret for publication. None was prepared to answer. It was as though I’d asked a food manufacturer which supermarket it preferred to do business with. It just wasn’t going to happen.

The reason for this wall of silence is easy to understand, though. No service provider wants to nail its colours to a certain party only to have to recoil when ‘the other guy’ gets into power. It goes a step further, however: to not even offer a quote on what outsourcers could expect from a new government indicates service providers are wary of getting involved in any open debate regarding election politics (or politics full stop).

Perhaps it’s wise to be over-cautious in this age of rabid social media. Quotes can easily be taken out of context, bloodthirsty mobs can be fashioned up in the blink of a retweet. Gone are the days when the only price of putting your head above the parapet was to be labelled ‘colourful’ or ‘eccentric’. Now, protruding heads simply get blown off. That’s a pretty irreversible action which no individual or company would actively attract.

With respect to the political dimension, however, it’s no secret the role of big providers such as Serco and G4S in delivering services for central and local government has grown under the coalition. Margaret Hodge, chair of the public accounts committee, estimates half of all public spending on goods and services goes to private providers.

For that reason it’s been pertinent to rely on the few scraps of information that have been on public display over the past few years. One of the most revealing articles about a potential change to the status quo revolved around Rachel Reeves, Labour’s shadow work and pensions secretary.

The interview was held in June 2014 with the Financial Times, and was headlined ‘Labour to take on outsourcing companies if it wins election’. The FT said: “Labour will mount an assault on big outsourcing companies if it wins the election, reducing their role in delivering the government’s back-to-work programme and exploring a plan to force them to pay all workers more than the minimum wage in exchange for Whitehall contracts.”

Reeves revealed Labour would do away with the current system of big centrally commissioned contracts when the current tranche expired in 2015-16. Instead services would be bought at a more local level, perhaps by local authorities or local enterprise partnerships. She said they would understand the specific barriers to work that people in their areas face and would already have strong links with local businesses. Asked if big corporate providers should be worried by the changes, she said: “Well, yes. I think we are going to challenge the status quo.”

Those comments shouldn’t be read in isolation, however. They came in the aftermath of G4S and Serco being forced to pay back hundreds of millions of pounds to government because they inflated bills for the electronic tagging of criminals. G4S also failed to recruit enough security guards for the London Olympics in 2012, forcing the army to step in.

Margaret Hodge accused the government of ‘shocking complacency’ after it emerged G4S and Serco had been bidding for further contracts while potentially facing criminal charges. Hodge said it was ‘utterly extraordinary’ that the outsourcers were allowed to do so while being investigated over contracts worth more than £200m by the Serious Fraud Office (SFO) and the City of London.

Chris Grayling, the justice secretary, wrote to his Labour shadow, Sadiq Khan in September 2013, saying the two firms would not be awarded contracts. “I am strongly of the view that we should not award new contracts for the two companies until we’ve established the facts about their performance and their corporate behaviour. That is why I have requested an audit of every contract that MoJ holds with G4S and Serco.”

But there were suggestions that G4S and Serco had, in fact, still been bidding for contracts. Hodge told the outsourcers she was ‘shocked that this can carry on. I think you should be dropped until the SFO has finished its inquiries. I do wonder what on earth the government is doing dealing with you if you are not, as you say, too big to fail’.

To make matters worse, it was reported by the Guardian in September last year that taxpayers will face a £300m-£400m penalty if controversial probation privatisation contracts are cancelled after the election under an ‘unprecedented’ clause that guarantees bidders their expected profits over the 10-year life of the contract.

“Labour is already committed to unpicking the justice ministry contracts to outsource probation services but will not now be able to do so without incurring the multimillion pound bill because of ‘poison pill’ clauses written in by Chris Grayling's department,” the Guardian said.

“The Ministry of Justice say they are only following Treasury guidance by including the clause, which raises the prospect that similar clauses are being included in other politically controversial contracts across Whitehall that are to be signed before the election.”

In October last year, Britain named preferred bidders for 21 criminal probation service contracts worth about £450m a year, with companies selected including GEO Group, Interserve and Sodexo. Those chosen will be in charge of operating many UK rehabilitation centres for about 200,000 low and medium-risk offenders, which includes overseeing community orders and supervising unpaid work.
“This announcement brings together the best of the public, private and voluntary sectors to set up our battle against reoffending and to bring innovative new ways of working with offenders,” said Chris Grayling. The Daily Mail noted that Capita didn’t win any of the contracts it applied for, while Sodexo, the French group whose justice services division already runs five prisons in the UK, was provisionally awarded six contracts in partnership with the offenders’ rehabilitation charity NACRO.

Interserve, chosen for five contracts as part of a partnership with social enterprise firm 3SC and charities Addaction, P3 and Shelter, said the collective value of its contracts is expected to be worth about £600m over seven years, the Mail reported, adding that Spanish group Ferrovial's British subsidiary Amey was picked for two contracts as part of a consortium which also includes four charities.

In December, Margaret Hodge’s committee called for big private-sector contracts for government services to be broken up and divided between smaller suppliers to avoid a ‘too big to fail’ disaster. The committee - investigating the £90bn worth of government contracts won by private sector firms, and whether they represent value for money – said Whitehall departments aren’t running big contracts effectively, the taxpayer is often not getting value for money, and contractors overcharge for some services.

Announcing the findings, Hodge said: “The legitimate pursuit of profit does not justify the illegitimate failure to conduct the business in an ethical manner. A culture of revenue and profit-driven performance incentives has too often been misaligned with the needs of the public who fund and depend on these services.

“Departments have taken their eye off the ball and placed too much trust in contractors… Government must guard against quasi-monopoly suppliers becoming too important to fail, and encourage competition through, for example, splitting up contracts to encourage SMEs to bid.”

In February this year there appeared to be a sequel to Hodge’s comments when it was revealed red tape preventing small business from winning government contracts is to be stripped away, alongside action on late payments as part of a push to help small-to-medium-sized enterprises (SMEs) generate income from the public sector.

It was reported in the Daily Telegraph that Lord Young of Graffham, enterprise adviser to David Cameron, said the arduous ‘pre-qualification questionnaire’ (PQQ) is to be shelved permanently for contracts valued below EU thresholds for goods and services.

“I am expecting that this will dramatically reduce the red tape involved in tendering for public sector contracts,” Lord Young said. “PQQs have been found to be onerous by small business, often imposing more than 40 pages of questions before they can be considered for bidding for a contract.”

PQQs will be standardised, simplifying the application process for contracts that are more complex and worth more than the EU threshold.

In a column in the Telegraph, Lord Young said: “I … found that the bureaucratic nature of public sector procurement militated against small firms. We’ve taken substantial steps to open up the entire sector by abolishing pre-qualification questionnaires, sometimes up to 40 pages long, asking for all sorts of irrelevant information. Large companies can deal with these as a matter of course, but directors of small companies throw up their hands in horror at them.

“We’ll be making the whole procurement process transparent and open and will shortly announce further steps to enable small firms to compete for public sector contracts on a more equal basis. From what we’ve seen already in our work for central government, this will result in substantial improvements in innovation and even cost savings.”


The chance any party will get an outright majority on 7 May is said to be slim-to-none. Nobody will know for sure until every vote is counted, of course, but it’s likely there will be some form of multiparty cooperation. That means what UKIP, the Green Party and the Liberal Democrats think is as relevant as the two main parties’ point-of-view.

Unfortunately, there was no response from either UKIP or the Greens to a PFM request for more information about their policies on outsourcing. But there are several helpful clues in both parties’ past statements.
In June last year, Nigel Farage, the UKIP leader, said his party would look at bringing public services back into the public sector, despite commitment to cuts. Farage criticised the ‘unhealthy relationship’ that has developed between government and big business and said his party would launch a crackdown on the outsourcing of public services to contractors.

"I now see very large parts of the private sector benefiting directly from jobs we used to think and understand the government did," Farage told the Institute for Government thinktank, adding that he disagreed with former Labour prime minister Tony Blair’s idea that public-private partnerships lead to better value for money.

“I'm cynical about it. I begin to think that actually a lot of people have made a very great deal of money." He cited private finance initiative deals in the NHS as evidence that outsourcing ‘hasn't worked very well’, and said the whole issue of outsourcing needed to be looked at, adding that he was ‘deeply questioning’ of outsourcing, regardless of whether it was to a quango or to a private organisation.
The Guardian noted that Farage didn’t outline how his party intends to reverse existing government policy, which has seen widespread outsourcing as part of cuts to departmental and local government budgets, while simultaneously promising to make cuts to public spending.

He said only that UKIP’s priorities would be to get ‘better value for money’, achieved partly by reducing funding for quangos and NGOs, and by looking at the ‘size of the Whitehall departments’. But he could not reveal which Whitehall departments might be cut.

“Before we commit to abolishing Whitehall departments, we need to think out outsourcing, about how much has gone out to other organisations, massively profiting individuals. There might be an argument that actually we end outsourcing and bring that back within the role of direct government,” he said.

Crucially, while Farage acknowledged that his party is unlikely to form a government in 2015, he said it may be able to influence the manifestos of the major parties.

If Farage’s comments sent a shiver down the spine of the big outsourcers, they may be just as concerned about the Green Party’s intentions. In September 2012 after being elected leader, Natalie Bennett said voters ‘understand that the 20th century approach of neoliberalism and globalisation, of outsourcing and financial speculation, cannot continue. The model is broken’.

She also took a swipe at Labour: “The Labour party, which was so relaxed about people getting "filthy rich," which was so keen to outsource NHS services and encourage academy schools, hasn't changed its tune – it just wants to cut a little more slowly than the coalition.”

There's been one prolific confrontation between the Greens and outsourcing – it took place in March 2013 and involved the Barnet Green Party and the Barnet Council. The Greens urged the council to reconsider its planned outsourcing of public services to the private sector ‘before it’s too late’. The Greens claimed the One Barnet scheme would dismantle more than 70% of council-provided services in Barnet, outsourcing the majority of council services to private outsourcing firms.

The combined contracts would be worth more than £700m over 10 years and the council estimated it could produce savings of up to £125m over the duration of the contracts. Andrew Newby, Barnet Green Party member, said: “Barnet Council's Conservative administration appears blind to their own experience of the strong risks of outsourcing, notably the fact that they are onto the third private contractor in a few years for the maintenance of Barnet Homes. The uncomfortable changes have cost money and disrupted the work schedule.

"Nor do the leading councillors take any account of the wider implications of their privatisations. Hundreds of jobs will be lost in the borough as work is transferred to offices and call centres hundreds of miles away. In another example, changes in parking payment methods (in 2012) linked to the contracting out of car parking has left many of the borough's car parks half empty and shop owners in many districts furious at a big loss of business."

On its website, the Barnet Green Party said it ‘strongly opposes the privatisation of crucial services, such as regulatory services and social care for the disabled and infirm. For-profit outsourcing has already proven to be an unstable method of providing necessary services and leaves councils at the mercy of private contractors who put profit before people’.


In a press release, the Labour press office noted that ‘too often under the Tory-led government we’ve seen an ideological approach that assumes outsourcing is always best. By contrast, Labour will put the public interest first’.

“That means no automatic presumption that outsourcing is the right approach, instead taking a case-by-case approach based on the evidence,” the press release continued. “It means ensuring decisions are based on a true evaluation of the full life-cycle costs, the quality of the services being delivered and wider social impact. And it means ensuring proper accountability and a zero-tolerance approach regarding firms that commit fraud at the expense of the taxpayer. Labour will also use public procurement to boost apprenticeships, ensuring all companies winning major contracts provide new apprenticeships as part of the deal.

“So (our) decisions about whether to outsource a service will be guided by the need to secure competitive prices but equally the drive to deliver the highest standards and safeguard the public interest. And at the heart of our approach will be strong performance management of contracts designed to secure high-quality, responsive services.

“Under the Tory-led government we’ve seen some serious failures to ensure procurement provides good value, such as the poor performance of the Work Programme or some of the NHS 111 contracts. And as the problems with the tendering of the West Coast Main Line franchise demonstrated, not enough is being done to ensure the right skills are in place to manage procurement processes effectively.”

In truth, the above tells us very little about how a Labour-led government would flex its political muscle. What politicians say when they're not in power, and what they do when they get into power, are often two completely different things - reality sees to that. Nonetheless, it’s broadly true a coalition between Labour and the Greens, for instance, would differ in style and content from one between the Conservatives and UKIP, notwithstanding Nigel Farage’s apparently hardline approach towards outsourcing.

Margaret Hodge is the wild card. The 70-year-old Labour stalwart is as feisty as they come, and has impressed all and sundry with her often fiery displays as chair of the public accounts committee. She’s just the sort of person you’d want chasing down corporate tax dodgers or looking out for the interests of your hard-earned money.

Unlike most politicians, Hodge appears to garner respect from those of all political hues, and is not backwards in coming forwards when she perceives an injustice has been done. At the time of writing, she had bowed out of the race to become London mayor, no doubt disappointing many of her supporters. The value – and danger – of Hodge being chair of the public accounts committee is that people tend to believe she’s a straight-shooter, so when she takes aim at large outsourcers, there's a tendency to believe they’ve done something very bad indeed.

But, in the case of G4S and Serco, have their deeds been so unforgivable that they can be used as poster boys for everything that’s wrong with outsourcing specifically and big business in general? Or are they just convenient political footballs for those who have a point to make against the powers-that-be?

The Economist, in an article in November, pointed out that while Serco’s travails are largely self-inflicted and unusually grave, it should give pause to any company thinking of entering a growing market for the hard end of outsourced government services: not cleaning, catering or maintaining computers, but such things as guarding prisoners and dealing with welfare claimants.

“Firms that have taken on such work have come under constant fire from the public, press and politicians,” the article said, adding: “Of course, private operators may be no more prone to mishaps than governments when they provide such services directly. But the reputational damage can harm a contractor’s prospects in other businesses.”

Firms that do tough stuff like depriving people of their liberty and denying them welfare benefits, the article concluded, can never expect to be loved, except perhaps by their shareholders.


On a more specific level, FMs may expect to see changes with respect to building information modelling (BIM). “We’ve seen the impact on the construction sector with many firms already implementing 3D modelling into projects and a huge increase in the need for designers with Revit as well as CAD experience, but what does this mean for occupiers and their facilities teams?” asks Mark Armstrong, head of FM and environmental consultancy at Dovetail Group. “Is the blunt tool of legislation the best way to implement improvements in building design and encourage collaboration between all stakeholders (construction firms, architects, consultants, occupiers and FMs)?”

Armstrong says that as recruiters in the FM sector, Dovetail Group deals with those who operate at the end-user/occupier end of the building lifecycle. “We see first-hand, the impact of poorly planned and executed construction projects in the way they impact the usability of the building from a client’s point-of-view. We’re also witness to the advantages that companies enjoy when presented with a building that’s been well designed, constructed and project managed with collaboration throughout the project process between all stakeholders. In light of this, the idea of full lifecycle costing and an integrated and interoperable model which can be interrogated and altered throughout the life of the building should make for a better managed, efficient and economical site.”

Armstrong wonders whether the FM industry will be ready come 2016 when legislation requires all public sector construction projects to be 3D BIM compliant. “Will CAFM systems be ready? Will our already overstretched FM teams be able to cope with the additional admin requirements and IT training? Have the impacts to building users and FM providers sufficiently been taken into account?”

To increase the uncertainty the election will in all likelihood produce a new government. “Depending on who is in No 10 and which, if any, smaller party holds the balance of power in coalition, will the legislation be watered down or will there be a greater focus on efficiency in the built environment? The over-publicised topics in the election run up, NHS, taxes, Europe, immigration and austerity mean that less sensational policies and legislation don’t seem to be on the political radar.”

BIM is never going to make headline news outside the industry press, but the potential for dramatic policy changes in several areas after the election means many companies may not be prepared to make the investments required to be ready for BIM and how it will impact building users, Armstrong says.

“This fear of making investments in areas which may not be necessary may turn out to be short-termism for our industry though, BIM is here and like it or not more and more BIM compliant projects will be completed. While it may look like a lot of work and potentially additional technology costs initially, in the medium to long term this could well be a silver bullet for every FM who has ever arrived in a nice new HQ only to find that in operation, the building is less efficient and user friendly than the original design brief suggested.”

Armstrong suggests it’s time for facilities and construction to collaborate. “We all work in the built environment space and the sooner we break out of our silos the better.”

There’s also the matter of energy efficiency: Surrie Everett-Pascoe, sustainability and management systems manager at Canon UK, says that sitting in on cross-party think-tank groups can be ‘quite a challenge’.

“I was part of the Strategic Electronic Waste Policy Forum when we did the first re-regulations and 97% of producers said they wanted a national clearing house set up. Apparently the treasury couldn’t agree because it would have to be a contract they'd have to let out. They asked us producers what we wanted, we told them, then they didn’t do it. So we ended up with a mishmash, and now they're trying to tweak it with the next bit of legislation.”

Everett-Pascoe says her feeling is that despite the red tape challenge of reducing legislation, some things won’t happen unless they're legislated. “I attended a breakfast meeting with a group of lawyers in the property sector and was talking to them about why we’re still building commercial buildings where they're not making them energy efficient, they're not using the latest technology, they're still putting up blocks the same as those 10 years ago.

“The lawyers I spoke to said they were suffering from lack of demand from the clients for more sustainable building. So if the clients didn’t ask for a less environmentally damaging building, like we did, they'd get a bog-standard one, and some clients weren’t able to pay the premium because it’s more expensive to have a building with all that technology. So the government needs to bring the environmental element into the planning laws. They’ve done so partially but they're not doing it enough.”

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