Efficiency, procurement and outsourcing – Hammond speaks

Philip Hammond – the shadow Chief Secretary to the Treasury – made an important speech on Friday that contained interesting ideas about how a future Tory Government might approach some UK public spending and procurement issues.

He picked up on the ONS efficiency data (see my previous post here) and the prize to be gained if public sector efficiency, which has grown less than private sector, can be increased.  Absolutely right; but of course, the issue is how to make the public sector 10% (at least) more efficient.

Efficiency can be seen as output divided by input; so there are different ways in which you can increase it.  For instance, you can hold input at the same level and increase output; or reduce input and maintain output.  Given the UK public spending position, I imagine it is the latter that interests Hammond; we get the same output (so public services can be maintained) for 10% less cost.  But that leaves you with the issue of public bodies probably needing to lose 10% of staff while improving efficiency dramatically; not impossible, but not easy.  And the same applies to the third party spend – the task would be to obtain the same output value from contracts for 10% less cost; a challenge to public procurement (see my previous post) without a doubt, but not impossible.

The second of his points – and a new one as far as I know – concerns outsourcing and the ability of public sector to bid for contracts.   “Why shouldn't an agency with an outstanding track record of customer service and a demonstrated capability in the use of technology - such as the Passport Service - bid for work from other Government departments” he asks.

But I believe the Passport Service outsource a major part of their IT to CSC? And a Call Centre to another provider?

So would it really be the Passport Service or CSC and other suppliers bidding? And if Passport Service ‘front’ the bid, will they agree to the Ts and Cs a commercial supplier would need to?  Professional indemnity insurance, the liquidated damages, service credits, warranties that the procuring organisation will presumably still require?   I have to say I can’t see this working, interesting concept though it is.

A better example might be the Bus services run by some local authorities, which have succeeded in increasing market competitiveness in some areas; they are usually pretty stand-alone from their host Authorities, so  could easily compete for work outside their core areas and that could bring real benefit.   So while this may be an interesting principle to explore, it may need some more thinking about this srot of procurement issue.  And as a minimum it would need;

  • Public bodies to be able to produce accurate costings for the services they are offering , separating out the real costs for the services they bid for (otherwise other provate sector bidders will rightly call ‘foul’)
  • Clear separation of roles between the purchaser and the potential providers
  • Some independent review and audit of the process

But where the market is failing; where there are monopolies or potential ‘cartels’;  or where a public provider may be able to experiment or provide innovation; it could just work.

There are more ideas in Hammond’s speech, including the idea of a Shadow Public Services Productivity Advisory Board, and greater transparency on contracts over £25,000. For a later post perhaps...

Peter Smith

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