Keeping it in the family

The rationale for outsourcing services has long been an article of faith across the public sector. Lower costs, greater expertise, increased economies of scale. Or so says the theory, at least. And it is a rare local authority – or NHS trust, university or other publicly-funded body – that hasn’t contracted out at least some of its activities.

But what once seemed such a rock-solid argument appears now to be built on less-than-stable foundations.

Services have struggled to deliver. Cost savings have failed to materialise. The collapse of too-big-to-fail providers has left the sector in chaos. And the public bodies affected now lack the skills, capacity or expertise to get things back on track.

Out of contract

In their recent publication Out of contract, published by the New Economics Foundation, David Walker and John Tizard argue that the implicit assumption that outsourcing is the answer to local government’s financial woes needs to change.

Indeed, they suggest that, for major services, in-house management should be the default option for local authorities. And that outsourcing should only be considered when it offers clear and long-term value for money benefits to the public sector as a whole.

They also advise councillors and senior officers to compile a map of their Council’s functions and activities, identifying whether they are carried out in-house, by private sector contractors, by other public bodies or by the voluntary sector.

They also suggest that it may be enlightening to seek further information on contracted-out services, including how well they are performing, how contractor performance is managed and how the Council seeks to learns from its experience.

And they counsel local authorities who do outsource services to ensure that they have in place the capacity and expertise to manage the contractors robustly and proactively – and to factor in the cost of this to their cost/benefit calculations.

Outsourcing services can sometimes be the right answer. But it is usually not. While it may result in lower short-term costs to the local authority, it can also lead to a reduced quality of service, loss of Council intelligence about service users and the local area, diminished working conditions for staff and reduced tax income to the public purse.

Walker and Tizard’s short publication provides a timely reminder that we sometimes need to rethink our assumptions. And as the rigid thinking behind the outsourcing of services starts to look distinctly shaky, I very much doubt that it’s the last we’ll hear on the matter.

You can read the publication for free online here.

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