The outsourcing industry is part of the solution

10 December 2010

There is a significantly larger role for the outsourced service sector to play in creating a more efficient public sector, argues the Chief Executive of the Business Services Association, Mark Fox

The new Government is now well established. It has proved Coalition Government can work in the sense of developing a common policy agenda. It has delivered a Budget and a Comprehensive Spending Review (CSR) and done so whilst remaining unified. This is an impressive start to a period of government, if a totally unexpected and unplanned one.
Dominating the political and economic scene is of course the deficit. The Government says, and means, reducing the deficit is their ‘number one’ priority. That has already led them into making difficult policy decisions and prioritising those areas they feel most strongly about.
Some will question whether it is wise and sustainable to leave the NHS as a protected zone. What is clear is that the budgetary tightening that will now take place will have a profound and lasting impact on the size of the Government and the state itself.
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 the dynamic and mature outsourced service industry.The experience of the private sector is that year-on-year cuts of 5 percent cannot be achieved without radical structural change. Given the scale of the cuts set out in the Government’s recent spending review, it is clear that public services require more than just greater efficiency. They need continuous improvement, and this necessitates some element of re-engineering.
Outsourcing should be part of the answer. The entire rationale of outsourcing is to perform a function in a better and more efficient way than a client organisation could do itself. BSA members have a proven track record in helping successful companies and government organisations achieve transformative change. They do this by investing in training and technology, utilising buildings more effectively, joining up the delivery of services and modernising management techniques. Innovation often comes by seeing the problem through new eyes, and outsourced service providers are not subject to the same hierarchical and organisational structures which can prevent the public sector from doing things differently.
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 actually needs to provide itself.
The BSA believes there is a significantly larger role for the outsourced service sector to play in creating a more efficient public sector. For example, in the health sector only 30
percent of ancillary services are outsourced. The majority of the NHS insists on delivering its own cleaning, catering and building management services when surely its managers would be better off concentrating on the core task at hand.The BSA has estimated that an easy way to knock £1bn off the NHS budget - without compromising front-line service delivery - would be to subject the 70percent of in-house support services to competitive pressure.
To optimise the benefits of competition, public sector commissioners need to change how contracts are awarded so that more companies bid for them, and to create new opportunities for companies to provide public services. 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.
New providers also 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 back on the legalistic intricacies of the contract rather than acting like long-term partners.
We are 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 public sector commissioners forget the lessons of the past and instead of contracting with long-term value in mind, they contract on the basis of lowest cost. Lowest cost does not always mean best value and instead of ‘more for less’, we risk ending up with ‘less for less’.
In summary, the outsourced services industry is a UK success story. Outsourcing is not a magic bullet to the UK’s fiscal challenge, but the industry is part of the solution.