Government needs to open outsourcing door a bit wider

30 September 2011

With spending cuts now beginning to bite, the true test of the coalition is only now commencing. Mark Fox discusses.

The government faces a tough few years trying to fix public services and getting the economy back on track. This all means the BSA also has a task in showing how outsourcing can help. Now with over 40 full and associate members, the BSA represents more of the outsourcing industry than ever before. To further our work as the main trade body we recently commissioned a report by Oxford Economics to show the size and scale of the industry. With outsourcing accounting for 8 percent of the UK economy’s output and supporting 3.1 million jobs, equivalent to 10 percent of the UK’s workforce, the BSA now has even greater capacity to demonstrate to government that this industry is a serious part of UK PLC and needs to be considered in the economic decisions of the country.
There are two big issues the BSA will be addressing in the coming year. The first of these is the government’s publishing of the Open Public Services White Paper, which sets out its vision for public service reform over the course of this Parliament. The white paper says that the coalition is committed to encouraging diversity in the provision of public services, including the use of ‘external providers’ in ‘commissioned services’. The BSA will be working hard on a detailed response to the publication, making the case that to realise the full potential that competition in public services offers, we need to change how contracts are awarded so that more companies bid for them, and to create new opportunities for companies to provide them.
Also, the lack of a level playing field between public and private providers results in commercially non-viable contracts and acts as a significant deterrent to bid, and this information will all be recorded in our response.
However the white paper has made positive noises. For instance, the government will introduce an "open commissioning" policy in a number of specific services, meaning that in these areas commissioners will be challenged by potential providers from both the civil society and private sectors on the future shape of that service; will be required to fully consider a minimum of three providers when they contract for services; and will transparently link payment to results, all of which will foster competition.
The government will also try and give commissioners confidence by establishing a credible accreditation body for public services which mirrors the NICE model for drugs in the NHS. This would be excellent for companies like the members of the BSA who are established in providing quality public services in a more efficient way. So the BSA will feed into this process to make the most of this opportunity for reform.
The crux of the issue though in making open commissioning a success is the need to remove barriers to entry for service providers of all kinds. Too often overly complicated and poorly managed procurement processes hamper the ability of suppliers to bid for contracts. In many cases procurement is overly-lengthy, complex and rigid. For example, procurements for private prisons are estimated to cost £1 million per bid. Similarly, under the now defunct Building Schools for the Future (BSF) programme, the process of setting up a Local Education Partnership was estimated to run to between £3 and £5 million for local authorities and private providers combined. The BSF process also highlights the potential for procurement reform to reduce bid costs. The reduction of average procurement length from 82 to 75 weeks and limiting the number of potential school designs submitted to two (rather than four previously) is estimated to have reduced costs by £3 million per bid. But there are also issues around VAT on outsourced services, as well as a lack of data and benchmarking on the performance of services, and the government must deal with these too.
The government has recently started its ‘Red Tape Challenge’, asking organisations and individuals to provide information where regulations inhibit enterprise and place an unwarranted burden on doing business. As part of this the government will be looking at TUPE, which protects employees' terms and conditions of employment when a business is transferred from one owner to another. While TUPE is part of EU law and cannot be removed outright (and nor would we wish to see it removed outright), the government is keen to find out whether the UK ‘gold-plates’ this kind of legislation, making compliance with it even more onerous, and the BSA has thoughts to contribute here.
Finally, the BSA is busily working on projects around the government’s mutuals agenda, and this will continue through this year and next. Following on from our very successful seminar on the topic attended by experts including the government’s Crown Commercial Representative, Stephen Kelly, we are using the break to write a report on the role private companies can have with mutuals. So, all in all, the BSA is ready for a busy summer of projects and is looking forward to a packed 2011/12 Parliamentary session.
Mark Fox is Chief Executive of the BSA.