A recent survey of council chief executives suggested that outsourcing was likely to grow significantly. But there are a number of reasons to suggest that this will not be the case
‘All local authority services can be outsourced and all councils will outsource more’ ran the headlines last week after the publication of the Localis report Catalyst Councils.
Localis’s survey of 73 council chief executives found that some of the respondents believe that certain services should always remain ‘in house’, but that 38% thought all services could be contracted out. These are interesting statistics as is the view also expressed by the surveyed chief executives that the traditional model of outsourcing would be replaced by ‘partnerships’ with the business and voluntary sectors.
‘Partnerships’ are always attractive but are very difficult to define, design and deliver in reality. Partnerships imply common objectives and yet this is not easy to achieve when one partner is seeking to maximise shareholder value and the other is concerned about public value, flexibility and low price.
Many previous attempts to introduce service delivery ‘partnerships’ between councils and the business sector have in reality been a politically expedient re-badging of a relationship that actually remained a contractual one. There have been examples of ‘joint venture companies’ being formed between companies and local authorities but these ultimately have then contracted with the town hall in conditions that could easily incentivise poor and less-than-robust client management.
The reality is that most of the current arrangements, however labelled are based on contracts that have not changed fundamentally since the days of Compulsory Competitive Tendering. There is an urgent need to explore the means of securing genuine mutually beneficial partnership and collaborative arrangements between the business sector and local authorities.
My own experience of working and speaking with local authority political and executive leaders leads me to believe that the appetite for major outsourcing may be less than the Localis survey suggests. There are several reasons for this.
The general view seems to be that the evidence of cost savings, particularly when service quality is taken into account, has in fact been 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.
Many local authorities are desperate to make savings quickly and outsourcing can often appear ‘less’ attractive given the cost of procurement and the fact that savings may not be realised for several years
At a time of unprecedented uncertainty, politicians and chief executives are worried about locking elements of their budgets into long-term contracts that have historically proven so inflexible and expensive to change or re-negotiate
There is an increasing view across the political spectrum 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.
There is a view too that there is a values problem in some parts of the private sector. The City bonus culture and the banking scandals taken together with the recent reported experiences, performance and behaviours of some outsourcing companies have also led to a questioning of the efficacy and efficiency of businesses being involved in public service delivery. Political leaders will be very aware of and concerned about public opinion when considering service delivery models.
Local government 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.
In some service areas supply markets may not exist or may be very much in their infancy with low levels of capacity. These conditions may understandably make some authorities cautious about embarking on a competitive procurement.
Now, I am not suggesting for a moment 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.
Such arrangements are likely to be based on collaboration rather than hard-wired contracts. And much needs to be done to develop such models, and their development has to be undertaken on a collaborative basis between the sectors.
Local authorities have many options available when considering how best to secure the delivery of public services for their communities and citizens. Traditional outsourcing to the business sector is only one of these. Others include:
- ‘in house’ provision
- local authority trading companies – single or multi-authority; without or without a business sector partner
- shared and exchanged services – actual and virtual
- collaboration or partnership with other local public agencies
- working and/or contracting with the voluntary and community sector
- creating or supporting the creation of staff-led social enterprises or co-ops
- joint ventures with the business sector
- ‘in sourcing’ expertise (short or long term) from other sectors but retaining local authority employment and control
- devolution to communities and neighbourhoods
- co-production with service users and communities
- direct payments
- and permutations and combinations of the above
This list is no exhaustive but it does indicate that a local authority, having set its political objectives and undertaken some form of strategic commissioning, can and should consider a variety of different forms of service delivery. One single authority, of course, will adopt different models for different services and possibly for different geographic areas.
Hopefully, all local authorities will want to secure good outcomes that are affordable while securing social and public value; good employment conditions; transparency and accountability. Consequently, they may not automatically consider traditional outsourcing options.
The Localis report refers to the need for improvement in local government commissioning capacity and competence. This may be necessary but it is vital that strategic commissioning is not confused with procurement. The latter is just one means of securing the outcomes identified by the former.
Excellent commissioning is about identifying the best ways to achieve these outcomes and to do so in a manner consistent with the values, ethos, objectives and strategy of the local community in order to maximise the wellbeing of local communities, citizens and businesses. It is not and must never be about maximising returns for providers from whatever sector.