Over the last couple of years, I and some others have been arguing that the traditional model of public sector outsourcing has reached the end of its natural life – or if not, is very close to it.
Increasingly, the evidence is growing that this view is shared by some, if not most, public sector senior managers and local government political leaders. The recent decision by Cornwall Council to halt its major procurement project is a further example of local politicians questioning the benefits of this approach.
Of course, there is still significant activity in the public sector marketplace, and central and local government, police services, the NHS and others are still involved in or planning procurement processes.
In 2010, many commentators and certainly many of the public service outsourcing companies were predicting a surge in public service contracting. They argued that with public expenditure pressures (the need to make substantial cuts) and Government deregulation in areas such as the ‘Best Value – Two Tier Code’ (which required new recruits to be employed on terms no less favourable than their colleagues who had transferred employer under contract-related TUPE arrangements) there would be significant growth in outsourcing. This view was reinforced in 2011 with the publication of the ‘Open Public Services’ White Paper.
However, in spite of continued Ministerial and media pronouncements on the potential for savings through traditional outsourcing, the surge has not occurred and has certainly not been a ‘tsunami’.
There would appear to be several rational explanations for this:
- traditional outsourcing does not produce immediate savings (if any at all) and the immediate need has been to find in-year savings for the Spending Review period 2010-13
- the primary need has been for major service redesign rather than delivering the same more cheaply with the desire for flexibility to allow for further change
- the public sector is seeking to address complex problems involving several agencies for which the solutions are not often easily contracted
- the procurement process tends to take a long time, costs a great deal of money and has a significant opportunity cost at the very time when the public sector is trying to find quick savings
- in a period of long-term uncertainty, there is a natural and understandable reluctance to constrain budget flexibility by locking elements of expenditure into long-term inflexible contracts
- there has been a public and political ‘mood switch’ in respect of the ethos and capability of the private sector after the high-profile banking and other scandals – even if these did not directly involve the majority of outsourcing companies
- the view that outsourcing ultimately cannot transfer all risks from the public sector
- public bodies are seeking to work more closely with and to award contracts to the social sector (social enterprises, co-operatives and charities) or local SMEs rather than large contractors, so the focus has moved towards different kinds of collaborative and contractual relations rather than traditional outsourcing
For public services, the overall driver is (or should be) about solving problems and achieving outcomes rather than managing or even changing services. Traditional outsourcing, with heavily prescriptive specifications as to how to deliver a service, is understandably by its nature usually about delivering services rather than solving problems.
Contemporary social and economic problems are complex. The challenges faced across the public sector are massive – a mixture of higher public expectations, greater user choice and personalisation, localism, demographic change, the need for economic growth and greater competitiveness and considerably less public money. There are no easy solutions and many of the approaches from the past, including traditional outsourcing, often have little to contribute.
There is an urgency to identify, develop and try innovative approaches including: new forms of service commissioning and delivery; new collaborative models involving the public, social and business sectors; and new relationships between the state and the public – the public both as service users and as citizens.
These new models will include:
- collaboration between the public and social sectors; and between the business and social sectors
- in-sourcing business and third sector expertise and experience to the public sector without the transfer of control and staff, and with some of the business sector’s reward being at risk from performance
- social enterprise and co-operative ‘spin-outs’
- in some areas, more co-design and co-production of services involving individuals, collective groups and communities
- new forms of public sector delivery including both shared services and trading companies
This list could and should be much longer as there are many permutations of these models and more. Some of the major outsourcing companies understand the need to change their business models and approach to the market but many still do not.
When considering their options, public bodies have to look for the right solution to their immediate and expected future needs. In that regard, I predict a further decline in traditional outsourcing to the business sector which will not be as prominent as it once would have been in the thinking and the actions of leading public sector leaders.