Outsourcing – or insourcing?

The Centre for Local Economic Strategies (CLES) has some unwelcome news for the recently formed National Outsourcing Association. 

The NOA hopes to become “the pre-eminent organisation in the UK that enables and promotes successful outsourcing for the benefit of end-users, suppliers and supporting intermediary organisations”. It will collaborate with banking, financial services and insurance companies, the public sector, retail, IT, telecommunications, the media, utilities, pharmaceutical,  transport and travel sectors, with an increasing membership ‘in the SME space’. 

It is also funding a new all-party group led by Bob Blackman, Conservative MP for Harrow East and former Leader of Brent Council, formed to ‘help government save money through outsourcing’. 

A paper from CLES, however, dispels a few myths around outsourcing, counteracting “attempts to portray in-house services as old fashioned, monolithic and bureaucratic, against a private sector capable of innovation, entrepreneurship and achieving value for money . . .” 

Poor privatisation track record 

“A whole host of people are suggesting that the best way of ensuring efficiencies is by outsourcing everything to the private sector. But for a long time we have suspected or known that marketisation of public services is flawed in many ways. 

“We have seen the failed privatisation of the railways, the government having to bail out the banks and take them into public ownership, and we have seen the government having to intervene yet again to the tune of billions of pounds in order to ensure that PFI came off the critical list.” 

More recent outsourcing problems 

CLES points out that local government has found outsourcing social housing and care services less than successful, with cases such as the high profile failure of care home operator Southern Cross and the poor accounting procedures revealed during the ongoing investigations after Connaught and ROK went into administration. 

Is outsourcing on a wholesale basis the best way of delivering public services?  

CLES sees a role for the private and voluntary sector in the delivery of public services as suppliers, additional providers of new or non-core services and where services are struggling to cope with demand, but insists that they are not a substitute for core public services delivered directly and democratically accountable to citizens and service users. They quote Paul O’Brien, the chief executive of the Association for Public Service Excellence (Apse): 

“Is outsourcing on a wholesale basis the best way of delivering public services?  Based on experiences over the past couple of decades, mainly in England where there is a much more mixed economy of provision, I would have to say the answer is no.” 

The tide appears to be turning as many local government services are now being ‘insourced’ 

Apse has carried out research into why so many local government services, including from administrative, back office, grounds maintenance, street cleansing, refuse and waste are now being insourced following a period of having been carried out by the private sector. The most quoted reasons for bringing services back in-house are: 

  • poor contractor performance;
  • the need to improve the quality of the service being delivered in order to achieve value for money;
  • workforce problems encountered including poor career development opportunities and a lack of motivation among staff;
  • and the need to address poor customer satisfaction levels.  

Leo King in Computer World – well worth reading – gives the most recent example of an insourcing decision: “West Dunbartonshire Council has rejected a detailed shared services proposal in favour of localised, cordoned-off services, in a move countering the plans of other councils across the country to merge key back office functions.” 

But four out of five government departments are now trapped – ‘contractually committed’ 

In January he reported the ‘damning’verdict of an advanced analysis of government contracts, conducted by deal price measurement firm ProBenchmark, that “Four out of five government departments are trapped in their outsourcing deals, stifling efforts to slash budgets”. 

As CLES confirmed, “authorities who had entered into large scale, long-term strategic partnerships found it difficult to negotiate efficiencies required under the Gershon targets, as they were contractually committed with private sector partners unwilling to give up profits.” 

Difficult times ahead for such councils, for the National Outsourcing Association and for their allied all-party group?