As reported by LocalGov, the outsourcing of public services is set to grow substantially over the next parliament, following on from a 6% rise during the last 5 year term. So what does this mean in real terms?
Many local authorities are already using outsourced procurement for benchmarking and tail spend management services and can see directly how these services can positively impact their spend. The outsourcing of supplies and services can equate to a large scale savings for the public purse with significantly more returned in savings, than invested in the services.
By utilising the broad industry purchasing experience and power of third party experts, public money can be made to work much harder. Often in public services, as well as other private organisations and companies, contracts, for example, are often renewed with little or no reassessment due to over-worked procurement teams, leading to year on year cost increases often faster than inflation. This ultimately means that value for public money can drop, further stretching budgets and supplying lesser quality services to the public.
By outsourcing, contracts and tenders will be made to work hard to ensure that pounds are spent more efficiently and the budget objective is achieved.
The report highlighted that public service outsourcing has grown from 22% to 28% of departmental spend; let’s look at that statistic. The 28% of departmental spend that is outsourced will be spent more effectively on contracts that have been thoroughly analysed against a wider market to ensure value for money. Should this have been managed in-house, it is possible that the cost of the services acquired may have equated to 35-40% of the budget. If you can deliver services that are in effect worth 35% of your budget for an expenditure of 28%, then any underspend against budget can be deployed elsewhere on services that are struggling or on improvements in other areas.
Benchmarking is a key area that outsourcing can deliver additional significant value. By comparing your purchase prices and contracts to those encountered in the wider industry sector it can help ensure that your organisation is performing as effectively as it can by acting accordingly.
Tail Spend Management is another area where outsourcing makes excellent business sense. Looking at an organisations contracted spend, it is typical to find that around 80% of spend will be pro-actively managed but the 20% of spend that remains, the ‘Tail Spend’, is not. This could be made up of individual transactions below a threshold spend figure, or debit cards, all of which can sum up to hundreds of millions of pounds a year of uncontrolled spend. So even modest savings generated by managing and consolidating tail spend has the possibility to yield upwards of tens of millions of pounds of savings.
This Tail Spend will likely involve a great many smaller suppliers, hence managing this within an organisation is a more complex process, necessitating the liaison and negotiation with the suppliers. This is a time and resource consuming activity that is best outsourced to business’ that specialise in these activities.
By utilising the services of procurement specialists, this previously unmanaged spend can be managed without committing large amounts of public resource to the process. This can be cost effective and ensures contracts can perform as well as possible without over stretching internal teams, but still yield excellent returns on investment in outsourcing.
Jenny Powell is Sales Director at JDP Procurement Services Ltd
