Government must address the causes of repeated outsourcing failures

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.