Has the UK Government gone cold on outsourcing?

The leaked minutes of Francis Maude's meeting with the CBI last week were very revealing, indicating that anyone who was expecting wholesale outsourcing of services to the private sector was very mistaken.

I'm not altogether surprised; we certainly expressed doubts a while ago about how quickly any wave of Government outsourcing was likely to come through. So why does Maude feel like this? Here's a hypothetical list of issues that may be colouring his thinking.

1. A mixed track record of outsourcing. I do believe on balance that outsourcing has been good for the public sector, but when you look at the NHS IT programme, the SATS testing fiasco, the Rural Payments Agency, the Child Support Agency...  Now, not all of these were by any means the 'fault' of the private sector firms involved,; but there are plenty of examples where private sector involvement has not been a panacea or driven better value service provision for the taxpayer.

2. The sensitivity around unemployment. While I firmly believe that the best people in the public sector are at least as good as their equivalents in the private, one largely unspoken issue is that something like 20%– and it does vary by organization - of public sector employees make a net contribution of zero (or less) to overall performance.  Ask anyone in the public sector after a few drinks and they'll agree.  But you can't fire anyone. (I spoke to a senior guy whose firm has taken on a lot of outsourcing from different parts of the public sector – in relatively small tranches – and he reckoned they can reduce staff levels by 50% easily every time with no service degradation). So there's great potential through outsourcing for the outsourcer to take responsibility for these people and either get something out of them, or get rid of them.  BUT... they go straight onto the unemployment register, and are not easily re-employable.

3. While local authority Chief Execs get hammered for their £200K salaries, the Chief Execs of Capita, Serco, Carillion etc, and the senior partners in the big consulting / legal firms, are making millions.  I seem to remember Peter Mandleson saying “we are intensely relaxed about people getting filthy rich", so it may seem odd that a Tory Minister perhaps is not so keen. But you can see his point at a time when real incomes are falling for the vast majority of us. "Fat cats exploiting the public sector" would be a powerful headline for Labor at the next election.

4. I haven’t seen anyone mention this factor, but there isn't really much resource available in Whitehall to make big outsourcing projects happen.  Anyone who has been involved in such projects will know that they need a lot of effort and resource. That also includes consultants, lawyers etc, because there is neither the capacity nor the capability in the public sector to resource such projects. And with Whitehall losing 30% of their own staff, and with pretty much a ban still on consultants; just who would make a major outsource happen?

So, that’s our interpretation of why Maude may feel as he does. I think his position is eminently understandable, and while there is a counter argument that says outsourcing is one of the few initiatives that can deliver the improvement in public service value that we all want, I have a lot of sympathy with his caution.

But we’ll come back soon to his alternative ideas, around mutuals, joint ventures, social enterprises and little fairies who help people out of the goodness of their hearts…. (sorry, a note of sarcasm did just creep in there at the end..)

While I’m sympathetic to his general caution, I’m less convinced, as you can probably tell, by the idea that these alternative organisational models are going to make a real difference to public sector service delivery.

Voices (4)

  1. Final Furlong:

    Looks like it’s warming up again. (See link for article.) Accordingly to the CEO of Capita, Minister Maude is making promises to the private sector behind closed doors – the latest one refers to “two travel administration contracts valued at £2.6bn which the Office of Government Commerce has put out to tender”. (Did anyone see this ‘tanker’ leave the harbour?) Nice of Mr Pindar to break ranks (it seems) and let everyone know.

    http://www.publicservice.co.uk/news_story.asp?id=16325

  2. Andrew F Smith:

    I think the other factor is timing. As anyone who has been involved in a major outsource knows, it won’t be easy and it will probably take longer than you expected at the outset. Particularly if there is a people (Tupe) or systems impact. The theme of the programme so far seems to be around delivering ‘quick wins’ which a) create some good headlines and b) assist with the immediate deficit reduction. However, as the “easier” projects are concluded with the short term benefits banked, then it seems likely that the Minister will need to encourage more complex programmes (including outsourcing) in order to continue generating both the PR and the financial savings that no doubt is being demanded of him.

  3. Final Furlong:

    After a year of negotiating with the top 20 suppliers to government (incidentally, when will this be extended to the next 30, 50 or so…?) one can imagine Minister Maude might have developed a view (or two) on the cons of outsourcing – particularly if he was embarrassed (let’s not go there…) by the fact that government was paying these suppliers multiple layers of profits via a vast range of differing rates negotiated by different Departments who previously had never talked to each other, let alone joined forces in buying the same things from these same suppliers.

    A well known consultant once told me how he’d built his successful business over 30 years on the single proposition that “suppliers treat their customers differently”. As the new CPO would know – from his days when he used to flog procurement services to customers – every deal is a different deal even when it’s the same client.

    At least he (the Minister) has woken up and gulped down a gallon of that fine smelling coffee…

    Anyway, he could hardly be criticised for handing over a few quid (in comparison) to a few not-for-profit firms (in comparison).

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