The pressures to outsource are growing, both on the political and the financial fronts. Ben Willis reports on a CSW round table at which participants discussed how to assess, develop and implement outsourcing projects

Left column, front to back: Tracy Gaffney; Bilal Toure; Paul Hancock; Graham Lay; David Buchan. Centre column, front to back: Valerie Vaughan-Dick; Phil Cholewick; Gary Brown; James Johns. Right column, front to back: Estelle Burns; David Arulanandam; Ruth Ormsby; Hamish Bremner; Phil Martin

The new coalition government’s cost-cutting aims are now clear. Except for a fortunate few, departments face budget cuts of 25 per cent or more. If civil servants felt stretched in trying to run high-quality public services when the last administration embarked on efficiency savings programmes, that task now looks a hundred times tougher.

As officials get to grips with the new funding climate, many will be looking at outsourcing as one way to achieve more for less. Even before the current austerity drive, outsourcing – particularly of back office functions – had a long track record in the public sector. However, it’s not without its complications and potential pitfalls.

Some voters, for example, believe that certain services are sacrosanct and should never leave the public sector stable. How civil servants should best judge which functions or services could helpfully be outsourced is a thorny question, and one likely to grow increasingly pressing over the weeks and months to come.

What’s more, once the decision has been made to outsource an operation, how should a department monitor delivery? Indeed, do civil servants have the necessary skills not just to draw up the right contract at the beginning of the process, but also to ensure it is properly fulfilled over time?

It was to discuss these and other questions on the future of outsourcing that CSW last month convened a round table debate with the support of technology and business services company HP. The lively discussion kicked off with panellists being asked to give their views on how the new government’s cost-cutting drive will influence officials’ decisions on outsourcing.

To outsource or not to outsource

The Home Office’s Fiona Spencer was in no doubt as to the impact of the envisaged cuts. “We’re going to see real reductions in budget, and this is going to drive outsourcing,” she said. “If we’ve only got this much money and we want to deliver x, what is the best way of doing that without having to cut something? We’re going to face some very real choices which will force us to think more innovatively about how we source our services.”

The Ministry of Defence’s Paul Hancock agreed that, in the face of drastic cuts, contracting out services would become more common. “The first thing departments will look at is what we can stop doing. Then we’ll get down to deciding how best we can deliver what we’ve decided to retain; that’s where the outsourcing question comes in,” he said.

Spencer added that the new rules introduced to deter and control spending on major IT and infrastructure projects are also likely to push people down the outsourcing route. If departments want new hardware, she said, they will have to look for new ways of financing it. “That’s where our partners will be very willing to help us: just as that was a driver for PFI [private finance initiative], the need to find investment will be something that drives this.”

However, while the Department for Transport’s Valerie Vaughan-Dick agreed that outsourcing is a feasible option in times of austerity, she warned that it should not be seen as a solution to failing services. “I’ve worked in a local authority where we outsourced a service,” she said. “Because it was so problematic, we thought: ‘Let the private sector take over, and they’ll sort it out.’ That didn’t work. You are looking for savings through outsourcing, but do not think that it will solve a failing service.”

The right call

This led the panel on to discuss what considerations civil servants should make in determining whether or not to outsource – and, if so, how best to do it. Referring back to one case from his days working for the National Health Service, David Arulanandam – now at the Home Office – said civil servants need to ensure that contracts require providers to maintain quality and attain all the government’s objectives.

“We decided to outsource a service,” he recalled. “In this case, the contractor provided the service but the patients didn’t receive the quality they were supposed to get. The private sector earned their money, the service was provided, but quality wasn’t. I’m concerned about that.”

HP’s James Johns contested the idea that outsourcing should necessarily result in the decline of a public service ethos: “The notion that private sector involvement in health services equates to impersonal, inconsistent poor responses is fallacious. It’s how it’s done, not the fact that it’s outsourced, that creates the sorts of circumstances described there.”

Johns’ HP colleague Graham Lay agreed that the quality to which an outsourced service is provided depends on how the initial contract is framed: “It really is a case of how you ask for what you want. It’s also true that if you’re not precise in asking for what you want, industry is going to eradicate any element of cost it can,” he commented.

Measure of success

Spencer and Hancock both agreed that the best results from outsourcing are achieved when the commissioning organisation is clear about exactly what it wants from the deal. Hancock added that in his experience, the most fruitful outsourcing resulted from a strong partnership developed between his department and the outsourcing organisation. This had allowed the two parties to draw up a clear set of measures to gauge the external body’s fulfilment of its side of the deal.

“In defence we’re engaged in a very significant outsourcing programme, and we’ve taken out half a billion pounds of costs from our fast jets programme and delivered an improvement in the quality of the service,” Hancock said. “Part of the way to do that was to work with our provider on a model that delivered both value for money and improvements in quality. And that required a completely different set of metrics that would drive the behaviour of the service provider.”

HP’s Johns said that generally speaking, the public sector has not always been particularly strong to date in clearly defining the level of quality expected from outsourcing agreements. This is partly due to the difficulty in quantifying what success looks like in the public sector – as opposed to private business, where the bottom line says it all.

“In the public sector, what constitutes value is much more difficult to define,” Johns said. “And so if you don’t have a metric that allows you to articulate and contractualise the drivers of value, it’s very difficult as an outsource provider to know if you’re doing the right thing. We’d like to see a much better grip on what constitutes value that is worth paying for and therefore can be built into our relationships.”

Skills

Of course, in ensuring they get the most out of outsourcing arrangements, officials will need the right skills in place to secure the best deals. The panel agreed that these skills are too rare in government.

Gary Brown from the Office of National Statistics cited a close colleague who he described as an “expert project manager”. However, he added, within his organisation there are only “about three people” with such expertise in handling big outsourcing projects. “I’m a specialist in statistics, not an expert in project management,” he added.

According to Phil Cholewick of the Home Office, the public sector is not always effective at managing the post-contract, delivery phase of a project or service. He stressed the need for officials to develop long-term relationships with their contractors to ensure the full value is squeezed out of a deal over its lifetime.

“Having a relationship with your supplier – rather than simply a piece of paper that says: ‘Do this’ – is very important,” Cholewick said. “We tend to focus on the front end, up until the contract is signed, whereas actually most value is [realised] after the contract.”

Knowledge sharing

One opportunity identified by panellists across government lies within the patches of expertise in outsourcing that are scattered across government. The understanding exists but knowledge-sharing is weak, said Estelle Burns of the Government Car and Despatch Agency: “We need to throw away the silo way of working, and share knowledge learned over time in bits of the civil service. There’s great practice going on out there, but everyone’s ploughing their own furrow.”

Indeed, said Spencer, there are a number of contracts in use across government that, if used as a model by other officials, could help slash the time it takes to put together a complicated procurement package. The gap at the moment, said Vaughan-Dick, is that there is no single body in place at the centre of government co-ordinating the exchange of potentially time-saving information on outsourcing.

“The only things I know [about what’s going elsewhere] are through colleagues: other directors of finance or commercial directors,” she said. “That’s not right. We should have a central piece of information on contracts that people can share and learn from. There’s no point us reinventing the wheel, trying to procure a service, when someone else has already done it. We could do something in four months rather than 14.”

 

At the table: the panel

David Arulanandam, resource and senior project manager, Home Office

Hamish Bremner, strategy manager, Jobcentre Plus

Dr Gary Brown, head of time series analysis branch, Office for National Statistics

David Buchan, group financial controller, Department for Transport

Estelle Burns, director of performance, Government Car and Despatch Agency

Phil Cholewick, head of strategic procurements and major projects, Home Office

Annabella Coldrick, assistant director, Department for Business, Innovation & Skills

Tracy Gaffney, medical and general supplies

Business optimisation programme manager, Ministry of Defence

Paul Hancock, deputy head of employment, Ministry of Defence

James Johns, director of strategy, civil government, HP

Graham Lay, regional vice president, government, healthcare and transportation, HP

Phil Martin, head of the Presentation Unit, Jobcentre Plus

Ruth Ormsby, director of shared services, Department of Health

Fiona Spencer, director of shared services, Home Office

Bilal Toure, divisional manager, HM Courts Service

Dr Valerie Vaughan-Dick, group finance and estates director, Group Finance Directorate, Department for Transport

Closing thought: what could drive progress and quality in outsourcing?

David Arulanandam: “It would be good to see more civil service secondment out to the private sector, to see how they do it.”

Hamish Bremner: “Civil servants’ attitudes can change [for the worse] when it becomes clear that their own jobs would be jeopardised as a result of outsourcing. This is understandable; however, outsourcing decisions should be based on wider considerations of public service interests and value for money”.

Estelle Burns: “We need to engage our staff to build communication and trust. If we improved that through knowledge-sharing, we would get somewhere.”

Bilal Toure: “We need to enable ministries to share their services with other ministries; there seems to be a lot of work going on [across government], but no-one really knows what’s going on.”

Phil Martin: “We need a better understanding of what we’re trying to achieve; that’s often where we’ve gone wrong in the past when we’ve looked at outsourcing. Getting a proper understanding of what we’re trying to do would help improve relationships, service and outcomes.”

Gary Brown: “I’d like the government to make a sweeping, sledgehammer statement on outsourcing, like it did with 25 per cent cuts, otherwise we’re all going to be completely inconsistent. If we’ve got a big anvil hanging over our heads, we’re going to be forced to do it.”

Fiona Spencer: “It’s important we engage collaboratively on the art of the possible: what are the opportunities? How can we think in a different way?”

Graham Lay: “I’d like a ‘religious’ focus on outcomes: establish what are we trying to achieve, and then get pragmatic about how you get to the outcome.”

Ruth Ormsby: “Public servants are good at understanding politics and helping the private sector navigate its way around [government]; the private sector is good at business development, commercialisation and transformation. It’s about recognising what our skills are and how you work in partnership.”

Tracy Gaffney: “Things that we think are far too dangerous to outsource now, we may outsource in three years’ time. What we define as ‘decider’ and ‘provider’ roles now will change as trust and relationships build; we can increase the scope [of what we outsource].”

James Johns: “It’s important we start a dialogue about what the future civil service looks like and what skills it should retain; it will move away from operational management towards commissioning, strategy, contract management.”

David Buchan: “I’d like to see more central intelligence: more sharing of information about what the opportunities are, and the perceived risks”.

Phil Cholewick: “My plea is that we improve on skills in working post-contract with the private sector.”

Paul Hancock: “In order to deliver the very best, we need to pool our skills and deploy them very effectively. There’s an opportunity to aggregate skills we have across government, particularly in regard to transformational change.”

Valerie Vaughan-Dick: “There’s an issue about looking at different models. As a department we shouldn’t be on our own; there should be more discussion about models and what’s out there.”

Written by Ben Willis