Outsourcing is a risky business


Outsourcing services from public bodies to private sector providers has lots of positives. Depending on the service and circumstances it might enable capital investment, provide access to new technology, improve customer satisfaction and/or save money. The negotiation of a contract also enables the parties to agree who is best placed to manage the various risks connected with the service. This means that that some of the risks that have hitherto been faced by the public body can be transferred to the private sector provider to manage. Typically these will be operational risks relating to hiring, training and managing staff, managing the supply chain and so on. But for all the risks that can be transferred, to the benefit of the public body, outsourcing brings with it a new risk: that the private sector supplier may fail to deliver the services. If that happens the public body (or some part of government) will be forced to step in if the public are to continue to receive their services, in just the way that this article suggests may happen with Southern Cross.

I'm not saying that outsourcing should not happen. I think, though, that politicians and public managers should recognise that things go wrong and should manage their suppliers to try to prevent failures by, for instance, putting sufficient resources into the team that monitors the suppliers' performance. It also means having a contingency plan in case the worst happens. Easier to say than do, I know, but then managing any public service is easier to say than do and that's why public managers should be better paid. But that's a different story ...