Over the last few decades, there has been an increasing trend to contract businesses to deliver public services. This trend, of course, goes back decades and indeed centuries but began to accelerate during Mrs Thatcher's Government and continued at an even greater pace during Tony Blair and Gordon Brown's thirteen years.
The Coalition Government has reaffirmed its belief in competition and a plurality of supply across a range of public services. The "Open Public Services" White Paper published just over a year ago made the Government's position very clear.
The Coalition Government claims that it wishes to see a greater role for third sector, social enterprises and employee co-operatives - as much, if not more, than that of the business sector. Indeed, it hopes that by the end of the current Parliament in 2015, one in five of public service employees will be in a co-operative. However, there are signs that as much as the political rhetoric promotes third and social sector provision, Government actions - and in particular its procurement practice - indicate a clear bias, unintended or not, towards the business sector, and indeed large businesses.
Since the 2010 election, in central Government, there has, so far, been less outsourcing to the business or any other sector than many, including most of the major outsourcing firms, might have expected. And in local government, whilst there have been some significant outsourcing contracts let over the last two years, again the level of activity has been less than might have been expected by enthusiasts for outsourcing. That said, a recent survey of local authorities suggests that senior officers expect to see an increase in outsourcing over the next three years. And in other areas of the public sector such as the NHS and the police, there have been some high profile examples of greater business sector involvement such as the Circle contract to manage Hinchingbrooke Hospital and the G4S contract with the Lincolnshire Police Authority. The Government seems very relaxed about these extensions of the business sector's involvement and indeed would seem to be actively encouraging them.
However, the experience of ideologically driven public service outsourcing should make politicians and public sector executives think twice before adopting such an approach. The extension of personalised budgets in social care and the significant increase in the proportion of care users who are choosing or being required to fund their own care have changed the nature of public service procurement (less) and business sector provision (more). There will be less outsourcing and more retail style purchasing by individual or voluntary collectives of service users.
So, in May 2010, the majority of outsourcing companies were optimistically and confidently predicting major growth in sales and contracts. And whilst the actual picture as I have outlined above remains mixed, many are still reporting record sales pipe-lines and some major contract wins.
However, I wonder if their optimism will be realised? Actually, I feel that it won't be.
Why do I have this view? It is based on a series of conversations with politicians, senior public officials and industry executives.
I think that there are six key reasons why there may be less outsourcing - or certainly traditional outsourcing - than many had expected.
1) The evidence of cost savings, particularly when service quality is taken into account, has in fact been very mixed when services are outsourced; and what is more, the public sector is generally more efficient than it was when outsourcing was being introduced and major savings were being made. Consequently, outsourcing offers smaller if any financial benefits than hitherto. Add to that the fact that if the public sector only ever outsources to drive down costs (and some always will do this), it will find that bargain basement shopping usually means buying very poor quality - and often long term extra costs
2) If a public agency is seeking to make significant savings quickly in order to meet public expenditure targets, outsourcing may appear 'less' attractive given the cost of procurement (pecuniary and opportunity costs are significant) and the fact that savings are not usually realised for several years
3) At a time of unprecedented uncertainty, politicians and senior public officials are concerned about locking elements of their budgets into long term contracts which have historically proven so inflexible and expensive to change/re-negotiate (though there are examples of flexible contracts)
4) There is a wide spread view that the public sector and the services it either delivers or procures should add social value and wider public value. Indeed, the Social Value Act now places a duty on public bodies to take this into account when procuring goods and services. Inevitably, businesses do not always score as highly on a social value count as the third and social sectors or indeed, the public sector itself. Social and public value in this context can include employment conditions, sustainability, decent treatment of supply chains and much more
5) Whatever the factual position, the City bonus culture and the banking scandals taken together with the recent reported experiences, performance and behaviours of companies in this market such as A4E and G4S, and of the wider Work Programme-have also led to a questioning of the efficacy and efficiency of businesses. There is a perception that too many (even if only a minority of large companies in particular) businesses are only interested in short term profits and bonuses. For many people, this perception sits uncomfortably with a public service ethos. This in turn will inevitably make some politicians more cautious about contracting public services to such companies
6) Much against expectations, the public sector has in fact proven that it can manage change and secure productivity improvements, reduce costs and sustain or even improve quality without outsourcing to the business sector. Often, the social goals that the public sector is seeking will require contributions from a range of public, community and third sector and sometimes business organisations. The fact is that these are usually best managed and coordinated in the public - not the business sector
Now, I am not trying for a moment to suggest that there will not be more outsourcing to the business sector. Rather, I think, it likely that such outsourcing will be on a different basis to much that has happened before - and without the scale of growth that some had expected.
Specifically, I foresee more:
•genuine joint ventures between the public sector and businesses; and profit sharing arrangements
•the use of business expertise on a long term consultancy/interim placement basis with the provider's reward being at risk, dependent on outcomes
•business-facilitated virtual sharing of services and resources between public sector agencies
•business-primed outsourced contracts with significant roles for third and social sector providers but with conditionality (beyond the Work Programme Merlin standards) to protect the latter - and vice versa with the third and social sectors as the primes
•creative use of private capital (beyond revised PPPs and PFIs) - including social investment and risk taking for public sector led commercial activities
•requirements for business providers to be fully transparent commercially, financially and operationally; and for wider conditions to be set on them to conform with ethical standards
•providers having to be able to demonstrate their social and community credentials
Such arrangements are likely to be based on collaboration rather than hard-wired contracts. More needs to be done to develop such models, and their development has to be undertaken on a collaborative basis between the sectors.
To conclude, it is my opinion that whatever the words or intent within the "Open Public Services" White Paper, it is by no means a certainty that there will in fact be a serious extension and growth in public service outsourcing to businesses; and much of what outsourcing does take place is not going to be on traditional terms. The public sector has many more options and will hopefully choose the ones that best work and fit their objectives and values. Often this will not be an outsourcing option.
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