Is this the end of outsourcing?
0There won’t be many still working in local government who will remember the beginnings of outsourcing in 1980. It was one of the first moves of the new Thatcher government to break the monopoly of local authorities on the provision of services and modernise the sector. The 1980 legislation only affected construction and building services and so had relatively a small impact generally but the acts of 1988 widened it to all other “blue collar” services and libraries and arts management. In 1996 the requirements were extended to “white collar” services.
It was interesting to see how various authorities reacted, splitting, of course, largely along political lines. There were authorities who went through the whole thing without losing any services at all to the private sector. As it was not strictly a level playing field this did generally require some fairly innovative treatment of overheads. Other authorities embraced the concept with great enthusiasm; the most usual targets being refuse collection, street cleaning and grounds maintenance.
There was no market before the legislation but multiple tenders emerged promptly, particularly in these areas, and competition was fierce. I remember the District Audit Report on the failure of a refuse collection contract in a London Borough which pointed out that to have been operated in line with the contract would have meant the refuse operatives moving at the qualifying speed for the Olympic marathon whilst shifting 10 tons of refuse each! Another failed street-sweeping contract was claimed to have provided a new opportunity for community spirit amongst residents!
In 1997 a change of government did away with the compulsory element and replaced it with the somewhat nebulous concept of “best value”.
However there has continued to be a considerable private sector involvement in some services. In the authority I live in, my refuse operative tells me he started working for the authority and is now on his fifth private sector employer.
Of course, since 1997 there has not only been the continuation of voluntary contracting-out but also an explosion in shared services and in very large contracts for many services with one supplier.
It was hardly surprising therefore that the local government minister, Rishi Sunak, said at CIPFA’s recent conference that Carillion’s collapse “shines a spotlight on outsourcing and whether it makes sense.”
Actually the statistics for the last few years show that bringing services back in house has become a regular feature of life. The financial results of the remaining outsourcing firms show that they are clearly under stress and local authorities need to carefully weigh up the risks involved in entering into further contracts. Having said that several authorities with large scale contracts have made significant savings over the last few years.
There does still seems to be an exception in terms of revenues, where there is still an active outsourcing market and several successful shared services. However the future changes to business rates may mean that local authorities would rather have that in house.
Clearly in the current financial climate there can be no one solution for provision of services and each must be carefully considered on its merits. In many authorities pursuing the theme of the competitive council means using arms length companies. These can be very useful in offering a greater competitive market place in which to operate but there are governance issues which need to be carefully considered and dealt with.
There are so many challenges currently. I have recently been involved in considering the extent of local authority involvement in money laundering. For local authorities to “allow” this to take place is a criminal offence and the designated money laundering reporting officer (often the section 151 officer) can face criminal action and a possible stay in Belmarsh. There is undoubtedly an increase in activity here principally in right to buy and business rates.
All this is the reason why local government finance remains the career of choice!
