GMB Highlights 53% Increase in Public Sector Outsourcing; 3 Steps to Decide Whether to Bring Services In-house
Byon January 29, 2019
We now know that unfortunately, Carillion was the single biggest outsourcing wake-up call the government has had to deal with. There were clear warning signs apparent in terms of its financial challenges. Despite this, the public sector continued to award the outsourcing giant new contracts.
In the end, the enterprise that was ‘too big to fail’ succumbed to its liabilities and cashflow difficulties. It failed, and according to the FT, had debts approaching £1.5bn, put over 40,000 jobs under threat of loss and approximately 30,000 subcontractors, suppliers and creditors out of pocket by a reported £2bn.
Public Sector Outsourcing – A Review
The government has promised that it would do things differently in future. It would review its outsourcing policy and it announced at the end of 2018 that it would be no longer sponsoring any more PFI deals.
However, when it was revealed that the public sector spent £95bn on outsourcing in 2018, the National Secretary, Rehana Azam, of the UK’s largest general union, the GMB, responded by claiming that the government was “…hell bent on privatisation and outsourcing our public services – regardless of the consequences.”
In fact, in an article last week on the GMB website titled ‘Carillion anniversary: public sector outsourcing value rockets 53%’ it was reported that the 2017/18 lifetime value of outsourced contracts was over half as high again above the £62bn figure for the previous year.
These figures are alarming to Mr Azam’s organisation because, on deeper analysis, they report that central government, parish councils and education outsourcing contracts are all up by well over 100% on the previous year. Mr Azam’s perspective is clearly that the private organisations that government is contracting with are unfit for purpose as he describes them as all being in a poor financial way themselves, looking “like they’re on life support”.
In this same article, the GMB points out the risks the government are taking, increasing their spend exponentially on outsourcers, some of whom, such as Capita, Interserve and others, have issued recent profit warnings.
GMB – Go Public Campaign
In response to these fears, GMB is launching a campaign called Go Public, which, sounding very much like the conversations around Brexit at the moment, talks about getting ‘a better deal’ for the UK taxpayer. Their means for achieving an end to outsourcing and privatisation.
The Go Public campaign has 5 key ‘demands’:
- Campaigning for public services funding
- Winning fair pay and pensions for public service workers
- Celebrating the role of public service workers
- Building public services fit for the future
- Challenging public sector outsourcing and privatisation
Challenging Public Sector Outsourcing
As the last point is the most relevant to us, in this article, I’ve extracted what they’ve had to say under this demand:
“The scope and scale of outsourcing across public services since the financial crash is unprecedented but, increasingly, public sector bodies are coming to the realisation that outsourcing does not provide value for money or a comparable quality service. With the Government spend on outsourcing estimated to be an eye-watering £251bn per year, the collapse of Carillion should serve as a warning that the fragmentation of our services for personal and private profit has had its day.”
There are certainly some things I’d agree with in that statement, but its primary assertions I personally feel are weighted towards an audience that I’m not a member of, those who inherently consider outsourcing to be ‘bad’ just because it’s labelled ‘outsourcing’. We’ve seen a number of outsourcing relationships that have been well managed and collaboratively run, to create significant benefits for all parties, greater innovation, and better than expected outcomes.
Of course, there are the high-profile failures, but on balance there are a number of outsourcing agreements that have provided organisations with much-needed services and infrastructure that they just would not have been able to afford to complete through traditional public sector means.
Views on Public Sector Outsourcing – Government v GMB
The government obviously has quite a different point of view to the GMB, both on the outsourcing of public sector contracts and who they should outsource to. I mentioned earlier that the GMB were especially worried about these contracts being awarded to private sector organisations that had recently issued profit warnings, but when in December 2018, the Permanent Secretary at the Cabinet Office John Manzoni was asked about the most recent contract awarded to Interserve, he reportedly pointed out that the government was “not legally allowed to not award them contracts if they bid and if they win”. And that Interserve’s financial situation was “very different” from that of Carillion’s.
Is GMB’s View on Public Sector Outsourcing Right?
In an article (we wrote back in 2016, we looked at the pros and cons of outsourcing and working on projects in-house. As the GMB seems to be advocating that, not only should the government cease outsourcing to those private sector organisations it deems as being in financial difficulties, but that all government outsourcing should stop, we thought we’d review our previous thoughts on this subject.
To summarise our assertions from this previous article;
The case for in-house was an increase in potential for regaining control over the way services are delivered, the possibility of greater agility to the service user’s needs, and a reluctance to see those running public sector services earning excessive profits from their efforts.
In the article, the case for outsourcing outlined the use of performance measures to incentivise contractors as a strong mechanism for achieving project or relationship goals; the ability to regularly conduct fair benchmarking exercises to keep costs down; and the need for accurate and well-considered KPIs to measure performance against, as these can be used to drive better outcomes.
We also discussed the steps anyone should take who is considering whether to outsource or to manage service delivery in-house. The three most relevant to this article are as follows:
1. Are outsourcing failures reason enough to go in-house?
The question is, that if you feel that outsourcing does not suit your needs is it alone enough reason to choose to undertake the project through in-house means? We’d suggest that to do so without determining whether your in-house efforts would result in a better outcome, would be a challenge.
2. Could you do better in-house?
A proper assessment of the pros and cons of both outsourcing and in-house means should be conducted first. Do you have the right skills and resources in-house, do you have the capacity to handle the additional work, and what evidence do you have to back all this up?
3. Do you have the capacity?
Major service delivery or infrastructure projects are resource heavy in their needs, so do you have the means to handle such a project in-house? And, should you not have the skills required, or the resources available, what would it cost to attract and recruit them? In addition, are you clear on the skills, experience and character types of individuals you would need to assure success?
When making a choice between outsourcing and in-house, it is vital that you assess the pros and cons of both, and the realistic abilities and capabilities of both, before making a decision. A one-sided assessment would not do the question justice. Outsourcing has its historic successes as well as its much-publicised failures and often what determines which way a particular relationship will go is rarely the choice between outsourcing and in-house, it’s the way in which the success of the service delivery was articulated, resourced and performance managed. As for the GMB’s position, what’s not mentioned in their article is any evidence that in-house would be a better solution and that it would offer better value for money in the end. It’s a serious question because, as we’ve already said, a one-sided assessment proves little.
Photo credit: Lyubchik Prokopchuk, iStock