Local government is increasingly questioning the wisdom and efficacy of traditional outsourcing of services to the business sector. Politicians and their senior officers are aware of a raft of high-profile outsourcing failures, and what is more the public is increasingly aware of these.
Labour, Conservative and councils with no overall political control are taking services back in-house – ‘insourcing’ – because they believe that this provides greater control of quality and budgets and strengthens accountability. It offers them greater budget flexibility too.
This is the time for all local authorities to review policy and practice in respect of outsourcing. Last week’s elections and the election of new leaders and cabinet members should add impetus for such reviews but frankly all prudent political leaders across local government should review their approach to outsourcing.
Councillors will be turning to their officers for information and advice.
Senior local authority officers, especially chief executives, finance directors and heads of procurement, should be preparing information for their leaders and the wider council on outsourcing.
I would expect this set of information to include a schedule of all major contracts and include:
- an evaluation of performance and how relevant outputs and outcomes are to the local authority’s policy objectives
- an assessment of the impact on the wider public sector and local economy of the contracts (e.g. lower wages leading to less local spending, etc.)
- details of the contractor and where possible their wider track record with the authority and wider; their ownership, business models, governance, ethical standards, how they treat staff, their tax policy, etc.
- the life left for the contract to run to term
- the value of annual payments for the contract and the net financial impact taking into account client and monitoring costs
- whether the contracts include break or termination clauses
- views of staff and services users
- the operational and reputational risks associated with the contract and contractor
- advice on how these existing contracts should be reviewed and, where it is appropriate and in the public interest, terminated or significantly renegotiated
I would also expect politicians to be advised on proposed or potential procurement initiatives for the coming two years. This information should ideally be accompanied by an assessment of:
- the potential to manage the services in-house or through a shared service arrangement with other public bodies including other local authorities
- the competitive nature of the supply market
- how procurement and contracted services could contribute to local community wealth-building and wider local authority policy objectives
- the authority’s capacity to manage services in-house whilst achieving high quality and securing value for money
- how the local authority could adopt strategic ‘make or buy’ criteria for determining whether to outsource (I would advise that the default option should always be publicly managed services and a decision to outsource will require to meet an overwhelming public interest test)
- the means to test the full economic, social and environmental impact of outsourcing
- how service users, the wider community and staff can be involved in the above
- a process for publishing and consulting on the business case for any proposed outsourcing
Political leaders may wish to review all proposed and forthcoming outsourcing procurements. They may wish to pause these until they have adopted a strategic approach. They may also wish to agree a programme to review existing contracts which are giving most cause for concern and/or failing to deliver public value. This will require the local authority to have the necessary capacity and staff with the right competency to undertake such reviews and to insource services. Termination or major renegotiation should only be undertaken when this is demonstrably in the public interest and value for money. It may be more prudent to let a contract run its life and then not re-tender. Bringing all services back in-house will be complex and take time. However, timidity should not drive continuation of current contracting.
In addition, political leaders, who are focused on place shaping and community engagement, may wish to work with the local voluntary and community sector (VCS) including supporting VCS groups to deliver public services. The officer advice should, therefore, include ideas for doing this without disproportionate and expensive competitive tendering, the use of grants and a partnership approach which includes co-commissioning and co-design of services.
Local authority officers will need to be ready to challenge their own mindsets and expectations. For the past four decades received wisdom has been to outsource to businesses and at the same time treat the VCS as if it were the same as large corporate entities. Senior officers have got used to it; outsourcing has become the default. It has been too easy to tell politicians that ‘there’s no choice’: procurement law and regulations demand it. Of course, the law and regulations do not demand outsourcing; though if and when services are procured this must be in accordance with regulations.
My advice, therefore, to senior local authority officers is to be ahead of the curve, start a dialogue with your politicians and advise them on how they, you and the authority can move on from outsourcing.