With the 2015 general election rapidly approaching, understanding the politics behind public-sector outsourcing is essential for organisations that are considering tendering soon for these lucrative, though often very complex, relationships.
Things seem to be getting quite politically polarised – Shadow Secretary of State for Work and Pensions Rachel Reeves says that the Labour Party would shake up the system in a bid to open it up to small businesses, social enterprises and charities, while Coalition outsourced contract spending has been hitting an all-time high.
It is therefore more important than ever that both public- and private-sector entities understand the potential outcomes for the future of the outsourced service sector.
Outsourcing under the Coalition
Although public-sector outsourcing became incredibly popular under the previous Labour government, the value of the total outsourcing spend has swiftly increased since the Coalition came to power in 2010. Total spending on outsourced contracts in the public sector hit £88 billion in 2014, double that spent under Labour. In fact, the UK’s outsourced service market is now second only to that of the USA in terms of size and capital value. With plans to privatise the probation service, to give major contracts to private-sector organisations – such as a proposal to outsource frontline cancer care in Staffordshire – outsourcing under the Coalition government seems likely to further increase.
Despite a growing tendency towards outsourcing the supply of goods and services, both in government departments and public-sector organisations such as the NHS and the Prison Service, the Coalition has been heavily criticised as a result of the scandals surrounding some of the companies that have won government contracts in recent years. With G4S and Serco currently under criminal investigation by the fraud squad, there is much public distrust regarding outsourcing.
Atos Healthcare, the private-sector organisation that conducts assessments on behalf of the Department for Works and Pensions, will finish its contract early, amid news that the Coalition has reversed 158,300 of their decisions regarding the fit-for-work scheme. This public-sector criticism is likely to have played a role in the new Labour proposals surrounding outsourcing and the tendering process, and it is therefore vital for large private-sector companies and SMEs to consider what would happen to the outsourcing market if Labour came to power in 2015.
Of course we have witnessed and reported on many of the relationship issues that large outsourced contracts bring to light over the years. Despite the significant hurdles that sometimes appear, with the right attitudes, behaviours and management, such relationships do have the opportunity to succeed. To give any client–supplier relationship the best chance of success requires a structured and considered approach, starting with a detailed analysis of what you really need in order to achieve properly quantified outcomes.
The next step is to create robust and fair contracts. Finally, what must never be forgotten is the importance of an excellent, well-resourced intelligent client function team to ensure all business outcomes are achieved. While this sounds simple, it is in fact an increasingly complicated web of practical and emotional forces that include knowledge, ego, personality, personal departmental and corporate agendas, financial stability, motivations and many more human and financial elements that determine the way parties to a contract act and react to one another. Only with an intimate understanding of this complex arena can you hope to influence outcomes to achieve your organisation’s objectives.
What would the outsourcing sector be like under a Labour government?
In a June 2014 speech, Shadow Secretary of State for Work and Pensions Rachel Reeves announced proposals for Labour to simplify the tendering process and therefore open up the outsourcing market to smaller businesses and social enterprises should they come to power in 2015. Shifting the emphasis away from big business, Reeves also announced that Labour intended to localise services to a greater degree, giving local businesses control of contracts in their area. With the tendering process currently prohibitively expensive and time-consuming for many SMEs and charities, this proposal is likely to appeal to those smaller businesses in the private sector that have previously been unable to bid for contracts. Such a decided shift away from big business, however, may prove controversial. Without any solid statistics in place, Labour have yet to demonstrate how this would affect the outsourcing market. In her speech, Reeves also suggested that in order to be allowed to bid, private-sector organisations might have to prove that they were paying their staff the living wage. Such a requirement might exclude some companies, including some of those smaller businesses Reeves is hoping to appeal to. Whether or not Labour’s proposals would actually be implemented if they came to power, it is important for SMEs to begin familiarising themselves with the tendering process and the sort of contracts that they might be able to bid for in the future.
Smaller businesses involved in large outsourced contracts would mean an added layer of complexity for client organisations – to achieve expected service levels, a larger number of supplier organisations would need to be involved in such contractual relationships. The more individual businesses there are to negotiate with, monitor and maintain relationships with, the more pressure there will be on clients to carry out their thorough due diligence, to clearly determine and communicate all their objectives, and to invest even more resources into the contract management stage to ensure that everyone is pulling in the same direction.
The future of outsourcing
While the specifics of the future of public-sector outsourcing may be uncertain and largely dependent on who moves into Number 10 in 2015, it is likely that public-sector outsourcing will continue to be an important, and often disputed, goods and services supply mechanism for years to come – whoever comes to power. In order to ready themselves for potential changes, it is important for both SMEs and large companies alike keep track of the changing political landscape surrounding government-led outsourcing. And, no matter which party wins the election, it is likely to be the willingness of clients and suppliers to take a good long look at the part they play in the success or failure of their outsourced relationships that will ultimately determine the future of outsourcing.