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Mixed results of outsourcing; council leaders can challenge neo-liberalism
For decades, local authorities have contracted with companies from the business sector to enable them to fulfil their duties and commitments to local communities and service users.
This is nothing new – after all, both construction and building work has commonly been undertaken by contractors. And many goods and services have and will continue to be supplied by companies under contract.
However, over the last three decades in particular, there has been a ‘growing’ trend to outsource local authority services to companies.
This has been most pronounced in social care but there has been a steady growth of outsourcing of IT services, support services, education services and even planning and other regulatory services.
In its recent memorandum to Parliament, ‘The role of major contractors in the delivery of public services’, the National Audit Office (NAO) has estimated local government spending on good and services at £84bn per annum.
The NAO also identified that the UK public services outsourcing markets are dominated by four companies – Serco, Capita, G4S and Atos, with There are often only a few bidders for major contracts – though this varies from service to service.
The NAO has raised a number of questions about the use of competition (or lack of it) in many public service markets. They have also asked if the rise of a few major contractors is in the public interest.
The NAO recognises that there are good reasons for the concentration of contracts with a few specialist market leaders but this situation in part is due to poor procurement practice in the past and a failure of the public sector collectively to ensure competitive supply markets.
It further recognises that there have been mixed benefits from outsourcing public services to the business sector, and specifically, has found that it is very difficult to see whether contractors’ profits reflect a fair return.
The NAO reports that Atos and G4S paid no UK corporation taxes in 2012 in spite of very significant public sector contract revenues. Yet they were in receipt of millions of tax payers’ money’.
Other recent reports, including the Institute for Government’s study of public service markets, ‘Making Public Service Markets Work’, earlier this summer have identified shortcomings in public procurement and contract management capability (though it acknowledged that these practices tend to be better in local government than in central government).
My own view is that the NAO and other recent reports, along with some spectacular failures in contracted public services, should give every local authority leader and chief executive reason to pause before rushing into a major service procurement exercise.
Anecdotally, one is aware of local government leaders questioning: the wisdom of such processes given their cost; the mixed performance record; the inappropriateness of locking money and service models into inflexible contracts at a time of such significant uncertainty; and the potential attractiveness of alternative service delivery models.
There are also some concerns relating to wider public questioning of the ethics and behaviours in the general big business sector.
And there have been the high profile reports and consequent Serious Fraud Office and police investigations of some major contractors; and admission of inappropriate practices and invoicing by contractors.
The Southern Cross debacle in social care demonstrated a failure of regulation and the consequences of un-co-ordinated spot contracting where no one is measuring the market share of providers nor monitoring their ownership and business models.
However, there is still a regular flow of projects being brought to the market. This flow may slow somewhat, but is likely to continue.
So what can local authority leaders do to address both their own and the public’s concerns? They can:
1. adopt public, social or voluntary sector delivery solutions wherever possible.
2. adopt the principles of the Public Services Social Value Act and always ensure that social value is maximised through all public services whichever sector delivers them.
3. promote and invest in the development of social and voluntary sector capacity, as well as ‘in-house’ capability, to drive up productivity and secure excellent service outcomes. This will involve working with the local voluntary and community sector, the wider public sector, local SMEs and staff and their unions.
4. choose the social and voluntary sector to deliver services without competitive procurement processes.
5. adopt the proposals being promoted as the ‘Public Services Users Bill’, which would require full stakeholder involvement in all stages of commissioning and procurement.
6. collaborate with other local public agencies to achieve user-focused and efficient services.
7. enhance their contracting skills and capacity, including the ability to encourage new entrants and widen competition when they procure; and avoid over reliance on the same small numbers of providers.
8. if and when letting contracts, they can require all providers to:
- be fully transparent with independently audited accounts for specific projects
- agree to profit share arrangements and caps on profit levels
- be fully transparent and comply with contracted standards for overall company remuneration and tax policies and practices
- be prepared to have previous track record, values and ethics to be taken into account in a selection process
- have exemplar employment standards and practices
- comply with and contribute to local economic, social and environmental gaols
- bear their share of the financial pressures under which the local authority operates
- collaborate with other providers and local stakeholders in the public interest
A number of factors are converging to challenge the idea that outsourcing, especially to the business sector, should be a default or even preferred option.
Local government has led the way on contracting with both the social and voluntary sectors and businesses for the delivery of public services.
Bold and astute local government leaders can lead the way in challenging the neo-liberal view that competition and markets always lead to better outcomes; and when they do procure from external providers, do so in a manner that complements their wider strategic agenda and ethical standards.