Local government needs to rethink its attitude to outsourcing

I think the following is a thought-provoking piece from the Guardian's website by John Tizard . Local authorities—and other public sector bodies—do need to think about what it is they want in terms of service and then work out how to get it. Times change and a key aspect of public service is the frequency of politicians, national and local, making changes. In some ways outsourcers can be more flexible than in-house staff and in other ways less flexible.

Perhaps now more than ever flexibility is needed in outsourcing contracts. There are ways of getting such flexibility, but to my mind it gets back to the issue that, despite 30 years of using private sector providers, there is a remarkable lack of commercial skill and knowledge within public sector organisations. Such skills are needed for two reasons. First, to be able to procure an outsourced provider that meets the organisations needs now and in the future and, second, to know when outsourcing is the wrong answer.

Double dip recession, calls for all Whitehall departments to prepare further cuts, the Comprehensive Spending Review brought forward to 2013, demographic growth, government borrowing remaining high – the financial prospects for local authorities are bleak.

Councils may have managed to balance their budgets for 2012-13 and for the remainder of the current spending review period (provided that they are not asked to find more savings), but are they ready for the next phase of austerity?

Given the immediacy of the cuts following the spending review and financial settlement in 2010, I suppose it was not surprising that few local authorities reached for genuinely radical changes over the last two years. They did not rush to outsourcing if they had not already commenced a procurement process before the autumn 2010.

It was a logical and rational position for local authorities to adopt. Traditional outsourcing arrangements take time to weave through complex and protracted procurement processes that cost large sums of money, consume senior officer time and rarely deliver immediate savings. Many of the savings that had been made by some earlier outsourcing of services such as back office or support services were no longer available, as councils themselves had become more efficient.

During a period of uncertainty, it's simply imprudent to lock up significant tranches of a local authority funding within inflexible contracts. The truth is that evidence of the success of outsourcing has been mixed at best.

Over the last few decades, local government has used outsourcing to the business sector for a number of reasons: to secure savings; to gain investment; to offer choice to users; to attract innovation and productivity improvements through competition; to address under-performance; and to transfer difficult management decisions outside the council.

These reasons vary both from authority to authority and also sometimes within the same councils between different servcies. This apparent inconsistency is understandable and appropriate, as outsourcing should only be pursued when and where it will add value.

These actions must be explained to the public. Outsourcing has not always been a success in adding public value, and those lessons need to be learned. Over two decades the scope of outsourcing and the services it involves has changed dramatically. In some ways, there has been a major move on from Compulsory Competitive Tendering (CCT) - but in others, regrettably, there hasn't.

Faced with the stark prospect of having to make even deeper cuts in the future, are we likely to witness a significant expansion of outsourcing to private companies? It is worrying to note that some local authorities are returning to some of the worst elements of CCT, more concerned purely with driving costs down then about quality or the terms and conditions of public servants. This will undoubtedly lead to long-term problems.

Thankfully, others are seeking strategic partnerships to both reduce costs and improve services, help manage demand for services, and to invest in wider social and economic objectives. Of course, these goals are not always compatible – especially when the overriding desire is to reduce spending. But attempting to reach them does require a new approach to partnership and collaboration between local authorities and the outsourcing industry. This requires constructive dialogue and a willingness by all parties to change their behaviours.

Local authorities are right to want greater transparency and accountability from providers. They should always want good terms and conditions for people delivering public services. However, local authorities should also be considering a wider selection of responses to their financial and policy imperatives, other than purely outsourcing. There has to be a role for in house provision, a greater role for the voluntary and community sector, for employee and user co-operatives, for partnerships with other authorities and the wider public sector, and other roles for business including in-sourcing.

The risk of blinkered thinking and lack of planning is that some councils will pursue a default and automatic outsourcing to the business sector believing it to be a panacea for their budget problems, or indeed for ideological reasons. Others will ignore the option for the exact opposite reasons.

Local government has to change, and change dramatically – in what it does and how it secures the results required by local people, communities and businesses. It has to be more open and transparent. It needs to be more fleet of foot. Set against that context, the old model of outsourcing has little to offer to meet these challenges. My prediction is that, over the coming years, the traditional outsourcing model will be left behind – so will be some of the current outsourcers.

Both providers and local authorities need to wake up to the new paradigm. They must reject simplistic options.

John Tizard is an independent strategic advisor and commentator on public policy and a member of the Guardian local government network editorial advisory panel

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"Expect multiple train crashes"

Here is a terrific article by Polly Toynbee from yesterday's Guardian. As someone who has experience of negotiating contracts under European procurement directives I can't see how doubling the number of commissioning bodies will reduce bureaucracy. If the government think that a standard form of contract will simplify matters they only have to look at the experience under the Private Finance Initiative (PFI) to see how much is spent on lawyers and other advisors to make the standard contract fit each project's specific requirements. Let's face it, even changing the names of the parties in a standard contract will take some time and money to complete. Whilst I suspect that law firms and management consultants might have a difficult time in short term as public bodies take in the scale of cuts they have to make the chances are that new opportunities such as the reorganisation of the NHS will provide a significant income stream. Will all of this result in an NHS that is better value for money?