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Government risks ‘less for less’

11 November 2010

A new BSA report challenges a public sector cuts strategy based on lowest cost services rather than working with outsource service partners to build long-term value

The BSA launched its report entitled,  Outsourced and Business Services - Delivering
More for Less
at its Annual Dinner at the Dorchester Hotel on Monday evening. The timing could not have been more appropriate as the Coalition Government’s policy cascade gathers pace and Serco’s share price recovers from its fall following the letter sent requiring its service providers to payback some contract costs .. or else.
As BSA Chief Executive, Mark Fox, warns in the forward to this Report, “Lowest cost does not always mean best value, and instead of ‘more for less’, we risk ending up with ‘less for less’. Outsourcing is not a magic bullet to the UK’s fiscal challenge, but the industry is part of the solution.”
This view is reinforced by Kevin Craven, BSA’s chairman, who says in his introduction, “The new Coalition Government agrees that fresh approaches are needed. Recent announcements on spending cuts have been accompanied by a greater willingness to see public services delivered by a mixed market of providers. But if new providers are expected to fill gaps, the Government needs to be much clearer about what it can and cannot provide itself, and distinguish between essential and discretionary services. Like a private company facing an outsourcing decision, the State should examine what its core functions are and what it needs to provide.”
He continues, “New providers then need open and honest commitment from the Government, and for there to be a sense of partnership. Outsourcing does not work as well as it can when public sector contract mangers fall backon the legalistic intricacies of the contract rather than acting like long-term partners. But if we can get this right, and bring together the commitment and expertise of public services with the customer accountability of the private sector, then we can achieve great things.”
As this Report points out, the outsourced services industry is a UK success story. Three quarters of the industry which has a UK turnover of £17bn and employs 375,000 people employed work is business to business, with the remaining quarter providing services to the public sector. However, the latter is the area which receives the most attention from politicians and the media …. as Serco discovered recently.
Mark Fox states,  “In this prevailing austerity, failure to optimise the benefits of outsourcing is a mistake. So too is discussion of public sector reform which fails to recognise the potential of this dynamic and mature service industry. The entire rationale of outsourcing is to perform a function in a better and more efficient way than a client organisation could do itself. A competitive market to provide these functions means investment in innovation and training is fundamental. This investment drives growth through the rest of the economy.
“The goal should be to inject the best of the commercial world into the provision of public services - and vice versa. We are also not naive to think that all outsourcing is a success. Careful consideration needs to go in to writing a contract, selecting the best provider, and managing performance. It is in our interests, as well as those of the end-user and the taxpayer, that the client - the commissioning body - is as effective as possible. The risk in the current economic climate is that clients forget the lessons of the past and instead of contracting with long-term value in mind, they contract on the basis of lowest cost."
Fox continues, “The BSA believes there is a significantly larger role for the outsourced service sector to play in creating a more efficient public sector. But to do this public sector commissioners must take a more commercial outlook. Too often, however, overly complicated and poorly managed procurement processes hamper suppliers ability to bid for contracts. The lack of a level playing field between private sector and public sector bidders creates a completely unfair commercial environment and unrealistic and unsustainable pension requirements are a significant deterrent to suppliers.”
Copies of the report can be downloaded from the BSA website CLICK HERE

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