Sunday, 2 June 2013

Outsourcing - good or bad?

Amidst this week's embarrassment of Parliamentarians serving their own interests the Sunday Times Business section included a piece of the increasing outsourcing of public services. I first have to declare an interest in that I am currently involved in a major outsourcing contract, so assume I have some bias, just in case.

One of the criticisms of outsourcing is alleged to be "little accountability or transparency over the claimed savings". To me, that argument just doesn't stack up.

First, it implies an acceptable level of accountability and transparency over existing savings under the 'as is' service delivery. It implies both will be reduced through outsourcing. Accountability for service delivery should remain with the democratically elected representative (or CEO) regardless of whether or not the service is delivered in-house or outsourced - failure to recognise that is a failure to recognise the fundamentals of public service delivery and contracting. Outsourcing delivery does not mean an abdication of accountability for delivery. In a well defined contract there will be clear levels of service stipulated supported with tight performance/contract management - accountability starts in defining what is to be delivered, which may not previously been subjected to the rigour of a specification.

There has been scepticism over claimed savings within the public sector for years. Indeed, even more fundamental, there have been difficulties actually calculating how much the 'in-house' service delivery costs. Without clarity on existing service costs there is no baseline for comparing the achieved savings, regardless of whether an in-house 'efficiency agenda is pursued or outsourcing. However, assuming you have gone through some sort of contracting route, you should be able to see how much an outsourced service will cost through the price. You should also be able to compare that price against any internal cost. Then, in subsequent years, you should be able to see year on year changes in the price paid.

But savings achieved shouldn't be the sole reason for outsourcing. If the outsourcing process is carried out well, the public body should also expect to see accelerated improvements in service. Once again that should be compared against a baseline.

Way back in 2002 the Audit Commission published 'Competitive Procurement' - the Audit Commission argued that prior to going to the market with a service for outsourcing, there was a need to first improve the quality of the service. I think that argument has long since been forgotten in pursuit of cost reductions. It still makes sense to me that the cost associated with providing an in-house improved service should be included within the options appraisal. Why is that so rarely the case?

Should we see more outsourcing? I remain agnostic. We should see better service delivery, we should see better options appraisal, we should see better risk management, we should see better contract management. Who delivers should be secondary to that although political philosophy can tip the balance. Having said that, there needs to be a significant improvement in preparing for the exit, and preparing for the transition after the new contract comes to and end - neither of those can be delayed, they are part of the preparation for the initial outsourcing.

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