Outsourcing Review

 

WEEKLY COMMENT 25-01-2018

By Barry Edwards

Outsourcing Review

 

The Smith Institute has published a report this week by David Walker and John Tizard about outsourcing and PFI which exposes many of the problems connected with them and makes suggestions as to how they can be improved. The liquidation of Carillion has highlighted the urgent need for change forcing the government to act quickly to protect many of the services and projects that are structured in this way. If you would like to read the report (26 pages) click on the link below;

http://www.smith-institute.org.uk/wp-content/uploads/2018/01/Out-of-contract-Time-to-move-on-from-the-%E2%80%98love-in%E2%80%99-with-outsourcing-and-PFI.pdf

If you do not have time to read the report below are some extracts from the introduction which summarise the content very well;

“The pressure on government departments, public bodies and local government to outsource public services has intensified since the 2010 election. This growing trend towards contracting out is largely being driven by fiscal austerity and the relentless search for budget savings but also by the Conservative Party’s deep-rooted belief in marketisation, privatisation and desire for a smaller state.”

“The authors explain that outsourcing has all too often been a good deal for business and a poor deal for the taxpayer, service users and employees. When contracts have collapsed, it is the public sector that’s left picking up the pieces. This is also true with the beleaguered Private Finance Initiative (PFI) programme, which under Labour and Conservative governments became the default option for securing private investment in public services.”

“Some public services, like IT and refuse collection, have been outsourced for decades. Other contracts have changed hands many times and services once provided by British firms are now delivered by multinationals or private equity companies. The problem is we know very little about the contracts; what the precise terms are and how they are managed by the contractors. Moreover, we also have a yawning information deficit on how outsourcing and PFI impacts on employees and wider society.”

“Outsourcing and PFI deals are becoming discredited and some of the leading companies are now questioning the viability of signing new contracts. The case for a serious rethink is now compelling. The time is right for reform and a new progressive settlement on public services. A new deal for improving our public services which is honest, open, fully costed and not predisposed towards contracting out is long overdue.”

There have always been critics of privatisation, PFI and outsourcing over the years since Margaret Thatcher first started selling off the state monopolies. The main criticism has been that the customer eventually has to pay more for the service which has always been countered by the response that private companies are much more efficient and therefore can manage the businesses much more effectively. That implies the private sector will cut out a lot of waste which will reduce costs and prices for the customer.

This report explains why that has not actually happened and identifies the main reasons for that in detail. To quote some main points from the report;

“The extra-contractual costs of outsourcing reduce its value for money. Paying contract staff less than a living wage – in order to win a competitive bid – has dire social consequences.”

“Outsourcing has weakened employees’ bargaining rights, cut productivity, clouded accountability and robbed public service of vital morale and vocational dimensions.”

“Outsourcing has further fragmented services when serious complex issues require joined up responses.”

“Contracts are being extended without proper consideration because Whitehall is consumed by Brexit.”

The last point is the reason for the continued forbearance with Carillion issuing contracts to a company that was clearly in trouble. This week a City group has sent a letter to government asking for PFI to be retained but in a form very similar to the recommendations in this report

Although the criticism of PFI and outsourcing is well founded, the report does offer an alternative to the current system and again it is best described by the authors as follows.

Recommendation one. Commission a root-and-branch review, examining where outsourcing has worked and why, the ‘whole life’ costs of contracts, effects on staff and service quality and other social and economic impacts.

Recommendation two. The government should compile a Domesday Book listing all significant contracts and create a central clearinghouse for evaluating the performance of companies across multiple contracts.

Recommendation three. A new agency is needed (absorbing the Crown Commercial Service) to regulate, share best practice and evaluate outsourcing across Whitehall and the NHS with parallel arrangements for local government and the devolved administrations. Agencies should be given powers to examine company ownership and internal transfers.

Recommendation four. With in-house provision as the default option for public services, set out new criteria for “make or buy” decisions by public bodies, writing into contracts Freedom of Information requirements, involvement of public and staff, transparent reporting of profit, labour and living wage clauses, union recognition, compliance with fair tax and boardroom remuneration. These criteria might give preference to charities and social enterprise if services are contracted out.

In my view, this report is excellent and I can only endorse and recommend the approach the authors have presented and I do hope you take the time to read it, comment and discuss it with your friends and colleagues.

That’s all for this week, more observations next week.

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