OUTSOURCING - DO WE NEED TO BE PART OF IT?

Outsourcing - Do you recognise these benefits?

An article in this week's Spectator puts a very interesting spin on the outsourcing debate. The article argues that the real evil is not capitalism or state ownership but a lack of competition. The real problem is when a monopoly public service is awarded to a private sector provider then that provider will exploit it ruthlessly for its own gain. The Spectator argues that the existing public service provider should be allowed to bid. I agree with the latter point. In  a competitive environment the existing public service provider, if part of a bidding process, will be able to carry out reforms which would never have been possible under the previous regime. I have seen this with my own eyes, when I was heavily involved in this process in Local Government.

The competitive nature of outsourcing works better when there is a multitude of potential effective service providers who can bid for the work and the work is put into contract parcels of sufficient magnitude to attract at least 3 bids for each parcel of work. The parcels of work which form the contract to go out for tender should be related to the size of the market and the number of potential alternative effective providers in it. If there are 4 medium sized contractors it is little use putting out a huge single contract as this will be unlikely to attract these medium sized bidders. As a sense check, the in-house team, should be allowed to bid for the work, providing the process is a level playing field. Rigorous tender examination should iron out any service issues. I distinctly remember from my own tender evaluation of a grounds maintenance bid, that it was obvious that one contractor has assumed that a single barrel mower would cut the grass of 4 fields. The assessment of this would have meant that this mower would have needed to be working continuously for 24 hours to get this particular job done. This was impossible and the mower would have probably broken down. The related bid was technically unrealistic and was later disallowed from the process.

According to this week's Economist -- some £80bn of work from central and local government has been farmed out to the private sector through outsourcing and this is predicted to rise to £140bn ( an increase of some 75%) by 2015. The public sector will look very different by then if this outsourcing trend is allowed to continue. Tighter public sector budgets will advance this agenda and local authorities and central government are drawn to it by the greater economies of scale for this provision and supposedly better management. The latter not always being the case of course, in the light of this week's hearings of the Public Accounts Committee on G4s.

In reality the Economist reports that there are pressures to choose the cheapest option rather than securing the best quality for the service. These pressures should be resisted because if they are not then quality related pressures only surface later on in the contract's life.

For all the hand wringing about G4s this week  -- the outsourcing bandwagon will still roll on. The challenge facing in-house providers is how do they need to change to compete and in any tendering process, will they be allowed to put in bids as well as the private sector, albeit with a changed structure,management and strategy. Will they be able in some way, to secure their place in this potential £140bn market?