Mark Whitehead 03 April 2019

Make or buy? We need market place nous and value-free analysis

The thorny question of public sector outsourcing to commercial companies is back on the agenda with the appeal by think tank Reform for it not to be banned – implicitly aimed at the Labour Party who recently promised to do exactly that as and when they come to power.

Instead, Reform says, expertise in procurement should be improved with more training for those tasked with doing deals often involving very large amounts of taxpayers' money.

The call comes weeks after the Government published its own comprehensive guide, the little-publicised Outsourcing Playbook, which set out the whys and wherefores of good practice in some detail over 53 pages of bullet points, graphics and diagrams.

Although aimed at central government departments, its wisdom could equally benefit local authority procurement professionals and others in the public sector.

In the last year or two the question has become urgent with the collapse of construction giant Carillion and scares among several other companies which led to the Government insisting they must draw up 'living wills' setting out how services would continue to be provided if they were to fold.

Last June the National Procurement Strategy for Local Government in England highlighted the need to put community benefit at the centre of the buying process, part of a movement dating back to 2013 and the Public Service (Social Value) Act which required buyers to consider the value added to society by each bidder in a tender.

Cabinet minister David Lidington proclaimed the new social value contracts would ‘revolutionise government’.

It's clear that the complex business of procurement is becoming better understood. Importantly, it is also being understood that it becomes even more challenging when a public body, motivated mainly by the wish to provide good quality services, is buying from the private sector, driven primarily by the need to make profits.

Reform calls for a new online training platform in-house and says new rules should be introduced to ensure that more consideration is given to wider social benefits such as boosting local employment.

Better data and guidance should be provided to allow commissioners to quantify and compare the potential social value of different contracts, it says.

The need is to appreciate the nuances involved. For the time being at least, whatever your long-term vision may be of how to provide the services people need, government departments, local authorities and other public sector bodies will continue to buy in from the private sector. They will not be able to do it all themselves: the 'make or buy' question will remain to be answered whenever a substantial new body of work must be fulfilled.

A black-and-white approach – 'public sector bad, private sector good' or the other way round – has hopefully passed though there are still those who will take those positions including died-in-the-wool privatisers on the one hand and equally dogmatic nationalisers on the other.

A middle-of-the-road, value-neutral position towards outsourcing makes sense no matter which side of the political spectrum you may lean towards. With huge amounts of money being spent by the public sector every year on services provided by private companies, it seems somewhat unrealistic to think contracts can be torn up and all the services be switched to state-run operations instead.

Getting it right will depend, however, not on fixed ideological positions but on smart thinking, experience, resources to develop procurement expertise and a certain amount of market place nous on the part of those spending public money.

There are many examples of public bodies saving money and improving services at the same time by making use of the private sector. In an interesting recent case, Maidstone Borough Council reportedly brought a cafeteria within council property back in-house at a cost of £220,000 between 2016 and 2018, but subsequently decided to re-outsource the management. The council said it was losing money when it ran the service itself but this had been reversed when it was re-outsourced.

But there are also many examples of the opposite, probably the best case being the London Borough of Barnet which decided to take a range of services back in-house from outsourcing giant Capita after suffering serious problems and demanding millions in compensation. The outsourcer has now come under renewed fire when it was discovered the pension scheme it was running on behalf of the council was riddled with errors.

The fact is outsourcing can work, but so can re-insourcing when the private sector fails to deliver. The East Riding of Yorkshire Council reportedly reduced costs by £2m since 2013 after regaining control of services including staff training, occupational health, payroll, IT and print and design, while Derby City Council saved more than £1m in the past two years after bringing highways maintenance – a contract previously held by Carillion – back under council control.

The Outsourcing Playbook devotes several chapters to how decisions to outsource or not can best be made. But a section titled "Bringing delivery back in-house' is a mere 15 words long, referring the reader back to a previous chapter on 'make or buy' – how to decide whether to outsource – but says nothing about what to do if you have already outsourced and then change your mind.

It may not have been lost on local government procurement professionals, too, that the Playbook was prepared with help from the head of Capita itself – one of the companies increasingly under the microscope accused of failing in outsourced operations.

Local authorities are upping their game in this area of expertise as in others, making them less vulnerable to being ripped off and helping them provide better value for money for taxpayers – and that can only be to the good for all concerned.

But just as much as market place nous is needed, so too is value-free analysis by those in a position to offer it.

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