Mark Whitehead 02 May 2018

A crisis in local government outsourcing?

A crisis in local government outsourcing? image

News of the latest outsourcing giant to hit choppy waters is worrying for anyone with responsibility for their council's contracts.

Following the collapse of Carillion in January and the losses reported by Capita last week, the announcement of a massive drop in Interserve's share price comes like the arrival of the proverbial third bus.

And although each company is different they have certain similarities which raise important questions about the balance between the public and private spheres.

All three are - or were, in the case of Carillion - companies spanning the continents and offering services in a dazzling array of sectors.

Capita is very much a child of local government - started back in the 1980s when senior CIPFA staff saw an opportunity to set up on their own and provide outsourced services to councils - but quickly grew into a multinational business operating in Europe, Africa and Asia, with about half its business in the public sector and the other half in the private sector.

Most of Carillion's business was in the United Kingdom, but it also operated in several other regions including Canada, the Middle East and the Caribbean.

Interserve, the latest to run into problems with mounting debts and falling share prices, operates in more than 40 countries, providing services to a wide range of industries including oil and gas, civil engineering and construction and providing facilities management at UK embassies throughout Europe.

Business logic might suggest the wide range of skills and experience offered by this kind of international, inter-sectoral organisation can be a big plus. Local government and other parts of the public sector - the NHS, for example - can benefit from the entrepreneurialism and know-how of senior personnel in business. Oil and gas industry executives no doubt have much to offer town hall managers.

But such size and diversity can also be a weakness. Like the Roman Empire, when an organisation becomes too big and geographically spread, it can become difficult for its different wings to co-ordinate and follow the same overall objectives, potentially leading to confusion, duplication and waste.

Nevertheless, giant outsourcing companies have become part of the local government landscape and many councils depend on them. Further crises would be bad news for all concerned, not least the employees whose jobs may be threatened.

Unlike Carillion, Capita and Interserve have time to turn their businesses around and look forward to better times. Capita points out that its reported losses were caused by a write-down of goodwill and that its underlying profits actually amounted to £400m.

But taken together the recent spate of crisis stories suggests a picture of local authorities and other parts of the public sector beholden to huge multinationals at the mercy of uncontrollable market forces.

It seems to suggest that for all their advantages, massive multi-national conglomerates operating across a wide variety of sectors may not be the ideal partners for the more focused and stability-minded world of local government.

Now that the three buses have passed it may be some time before another one comes along.

Certainly that is what is to be hoped, if confidence in big private-sector outsourcing partners is not to be shattered altogether.

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