16 September 2019

The government has a chequered record on outsourcing, but Tom Sasse argues that bringing services back into government hands by default risks throwing away the successes.

The list of outsourcing scandals is long and will be familiar to the public. When the Army were drafted in to provide security at the Olympics; the fiasco over G4S and Serco charging the Ministry of Justice for tagging offenders who turned out to have left the country; the recent failure of probation services.

It would be easy to conclude that outsourcing – extended by every government since Margaret Thatcher’s and transforming the way many public services are delivered – has failed. Indeed, Labour have said there is "not a shred of evidence" that outsourcing has improved the cost or quality of services. But that would be the wrong lesson to take when examining the last 40 years.

Instead, the picture is more complicated. Contracting out waste collection, cleaning, catering and maintenance in the 1980s and 1990s led to large savings – and in-house providers have become more efficient as a result of competition. While the evidence is more mixed in front-line services, it is clear that opening up prisons to competition has led to innovations and competitive effects, many of which have improved the lives of prisoners.

Government should outsource services only when it benefits the public

The government needs to get better at using outsourcing and competition where it delivers benefits – and not as an article of faith. Too often, governments have outsourced when they shouldn’t have done: when there was no market of good suppliers, performance couldn’t be measured, or it proved impossible to define an adequate level of quality in the contract.

Probation breached each of these conditions but went ahead regardless, with the system of checks and balances – whether it is officials raising concerns or scrutiny of plans by central government departments or by external bodies – not working.

Consecutive governments have also repeatedly outsourced in pursuit of large savings, with little reason to think suppliers could deliver. Capita’s contract for delivering primary care support services was premised on projected 35% cost savings, but the NAO found that neither party “fully understood the complexity and variation of the service being outsourced”.

Government must improve the way it outsources services

As well as making the right choice at the outset, government must improve the way it outsources services. Many projects have been undermined by a lack of understanding about what is being outsourced and an insufficient assessment of quality in bids. Large contracts – such as Circle’s contract for Hinchingbrooke Hospital, the first NHS hospital to be transferred to the private sector – have failed when government has transferred risks that suppliers have no control over and cannot manage, such as demand for a service.

Officials often lack the information they need to manage contracts or rely on suppliers’ data, which was why the MoJ only discovered the tagging scandal when it came to re-tender the contract.

Government must take the opportunity to reform outsourcing

The Government has acknowledged many of these problems. In February, the Cabinet Office published the Outsourcing Playbook, setting out best practice on outsourcing. It is an important first step – and has the potential to be transformative.

But some of the proposals in it have been policies for many years – and have often been ignored. Changing deeply ingrained culture and behaviour is difficult, and officials may not have the time, skills or incentives to adopt best practices. Ministers will apply pressure to push through unworkable plans – as happened with probation.

Our new report makes a range of recommendations on what could be done to deliver change in government outsourcing, including strengthening commercial skills, beefing up the approvals process to ensure that flawed projects don’t get through, making ministers and officials more accountable to Parliament and the public, and improving the evidence base that informs outsourcing decisions.

Outsourcing is at a crossroads. If government doesn’t take the opportunity to deliver real reform to the system, then it will continue to suffer repeated failures. That could well lead to an increase in public support for bringing services entirely back into government hands. And if that happens, then the benefits of outsourcing will be lost. 

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Of the £292 billion the UK government spends each year to purchase goods, services and labour from the private sector, about £57 billion goes to privately-owned entities specialising in outsourced public services – an amount which is only set to rise in the coming years, as more and more public service provision work is outsourced by this, and successor governments.

However, there is a question mark over the ability of central government departments to commission and oversee the proper functioning of outsourced service provision contracts to the satisfaction of external auditors, not least, because they simply do not have adequate numbers of suitably qualified and experienced staff on their payroll.

Asked by the Chair of the Public Administration and Constitutional Affairs Committee, Bernard Jenkin on what confidence Parliament can have in government making rational decisions, based upon evidence about whether to outsource or not, the then Comptroller and Auditor General Sir Amyas Morse* gave this astonishing reply:

“….. I think there are a lot of areas where Government does not have the capacity to do anything else but outsource. The Government are not set up to deliver all these contracts themselves, and that has been the case for a number of years. Therefore, the capacity, the volume of resource they would have to have internally to do this work, is not there, and has not been there for some time. Not only that, but in many parts of government, the capability of even acting as a prime contractor is not necessarily there. That is not a fault. It has been a choice that parts of government have made over time.”

Sir Amyas Morse, who has just completed 10 years as C&AG, has had a ringside view of the inner workings of government and is therefore extremely well-positioned to comment on the outsourcing experiment.

One of the reasons for this almost non-existent capability in Whitehall is that public servants who used to perform these tasks have ended up on the payroll of outsourced public service providers in the private sector, via the ‘revolving door’.

This is because the Business Model of early pioneers of outsourcing was predicated upon the belief that there will always be a willing and limitless supply of people coming over from the state sector to execute the contracted work, without requiring any investment to be made in conversion training, as they were already accomplished in the job in the public sector. Of course, this was true during the early days of privatisation, but it is no longer valid now, with the source of cheap and ready labour having all but dried up – which would explain why outsourcing contractors’ businesses are in such big trouble.

This mass influx into the private sector would also explain why staff on outsourcing contractors’ payroll today is made-up entirely of people who were previously in the pay of the State. Which begs the question, what are the tens of thousands of people currently in Whitehall doing?

But the real tragedy about this outsourcing experiment is that people who were previously in the pay of the State have replicated the same failure in the private sector, as recent examples have all too clearly demonstrated.

At this point, it is as well to reflect upon the reasons why the government went down the road of outsourcing public services in the first place – because, people in the pay of the State who were charged with doing this job had, for many decades, failed abysmally to show any improvement in their performance, notwithstanding persistent demands from the governing elite, of all political persuasions.
@JagPatel3

* See answer to Q496, oral evidence from Sir Amyas Morse before the Public Administration and Constitutional Affairs Committee, Inquiry into Sourcing public services: lessons to be learned from the collapse of Carillion, HC 748, 24 April 2018 http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidence...