Outsourcing in the UK Public Sector – Conflicting Signals

There are some conflicting signals coming out of the UK government outsourcing market at the moment. On the one hand, we have seen some high-profile failures, such as the Southwest One venture (which we reported on at some depth) and the recent court case which Cornwall Council won after sacking BT as their service provider. There have also been a number of reports of councils in particular brining services back in-house, or at least considering doing so, often in the light of reduced funding issues. Here is one example from Bournemouth. In other cases, outsourcing continues to be a source of controversy; the Birmingham and Barnet deals with Capita are good examples.

And yet … according to research by business process outsourcing firm arvato, part of giant German group Bertelsmann, and analysts Nelson Hall, “the total value of contracts signed by councils up 23 percent year-on-year, according to the arvato UK Outsourcing Index”. (That is from this report on the ChannelBiz website).

The report claims that contracts increased in size and length, values growing some 30% to £37.8 million and average contract length growing to 66 months. Yet central government has in general been pushing for shorter contracts, more flexibility, and even in some cases brining work back in-house. The strategy for the HMRC (tax authorities) mega-IT outsourcing contract, currently with Cap Gemini not coming up for renewal and re-shaping soon, seems to be following those principles, for example.

Now we’re not inherently against outsourcing, but given the track record in local government in the UK in this field, we have to be somewhat concerned by the figures. It would be good to think that all these deals are carefully thought out and constructed, with real experts involved in supplier selection, negotiation, and contracting. We would hope that KPIs, service levels, the right commercial incentives (and penalties) for suppliers are all being very carefully considered. But that is a hope, not an expectation!

One interesting development that caught our eye is this venture, described on the LocalGov website, with five councils from different parts of England (Hart District Council, Havant Borough Council, Mendip District Council, South Oxfordshire and the Vale of White Horse District Councils) collaborating in what seems to be a BPO “framework” type agreement, which has been awarded to Capita as the supplier. But the five councils are not all neighbours, they are simply five apparently random councils that somehow decided to do this together, which makes it a very unusual idea.

That does bring up some questions around economies of scale, which are being claimed as one the drivers for this. You can see how it might be easier to deliver such economies to physically close bodies -- a little harder when they are spread out. And these are District Councils, relatively small organisations, not generally well-resourced with highly experienced commercial / procurement folk. So we admit to being concerned about their ability to handle a supplier as experienced as Capita. On the other hand, some will argue that such organisations don’t have the resources to achieve great results themselves, so maybe outsourcing is sensible?

We’ll see anyway; it is an interesting step, so we will watch with interest to see if the benefits being claimed now are delivered in fact over the next few years. And we suggest the five councils take a look at some of the Barnet evidence in particular.

First Voice

  1. Stephen Heard:

    The other alternative to outsourcing is merger to achieve savings. See: http://www.edp24.co.uk/news/politics/waveney_and_suffolk_coastal_councils_set_to_consider_potential_merger_1_4442929 which predicts the merger of two District Councils to form one of the largest District Councils in the UK. An interesting way to become a Unitary council and what next?

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