Musings on the issues around outsourcing in the public sector – why is the political establishment obsessed with it?
This post stems from the Guardian’s headline about outsourcing some key functions of the police – such as detaining suspects – to the private sector. This is in part a “knee-jerk” reaction but also a “I need to look into this in more detail” sort of post. This is because the history and the detail around it is a little murky. Although the issues around privatisation, outsourcing and buying in goods and services are related, they are not the same. But they can be confused with one another.
Some personal definitions
Buying stuff: Monarchs and government’s buying stuff is not new. Whether it’s the hiring of mercenaries and the procurement of weapons, it’s been going on for hundreds of years. It led to some interesting historical spats too. One that comes to mind is that of Queen Victoria’s eldest grandson Kaiser Wilhelm II castigating the arms manufacturer Krupp for selling weapons to the then Chinese Empire which were then turned in Imperial German troops in the aftermath of the Boxer rebellion. Think of it like Argentina going into the Falklands today using weapons made by BAE systems that were manufactured in the UK. Exactly.
Privatisation – the like of which we started experiencing in a big way in the early 1980s was (amongst other things) a change in mindset of the role of the state – and the transferring out to the private sector things previously done by state-owned organisations. Rather than the state buying something, this is about what type of organisation should carry out a given function – public sector or otherwise.
Outsourcing is primarily about the delivery of services to persons or organisations that supposedly can deliver a function otherwise delivered by the state, but at a cheaper price (and/or more ‘efficiently’). I tend to think of these outsourcing firms as those that provide corporate services – such as running a staff canteen or delivering cleaning services.
So, where are the problems?
Whitehall has been having fun and games with all of these. The Ministry of Defence has a… ‘colourful’ record when it comes to achieving value for money in its purchases. Things are also not so good on sequencing of purchases – the idea of having very expensive aircraft carriers with no aircraft to fly off them striking me as particularly farcical.
On privatisation, there were some privatisations that, with hindsight seem to have made commercial sense in the longer term. British Airways and British Telecom being two examples when we consider the rise of short-haul budget airlines and the growth of cable and mobile phone/TV/internet providers. There were others that (in my view) clearly did not – the railways being the classic case. This is whether you consider the performance of Railtrack’s system of maintenance, the price increases since privatisation and the subsidies to the railways at the same time. (See more on my thoughts about all things railways here).
Outsourcing – the two key issues
On outsourcing, there are two issues for me here. The first is principles of accountability – moving from democratic accountability of service delivery to contractual accountability between public sector organisation and separate delivery organisation. The second is the issue of evidence – evidence that service delivery and broader “outcomes” are better value for money for the state than an “in house” team.
Prior to the boom in outsourcing, the principle was that as citizens, we could go to our local councillors or MPs and get them to deal with issues of service delivery. Councillors would hold the council to account and MPs the government for services delivered by the public sector. This in part is underpinned by the principle that MPs and Councillors once elected represent everyone who lives in their constituencies and wards – irrespective of who constituents voted for. If I have an issue about (for example) the opening hours of my local council-funded swimming pool and am getting nothing back from the pool managers, I go to my councillor. If I have an issue about my local hospital, I go to my MP. Councillors & MPs then hold to account ultimately the executive office holders (whether executive councillors or Ministers of the Crown) who then take action to get the problem resolved. (Ideally).
With outsourcing, the line of democratic accountability is broken. The principle of outsourcing is that in return for cash payments, non-state organisations (private firms through to charities) deliver a given set of services as set out in the contract negotiated. On paper the hard numbers might look promising: Compare how much is spent on the existing in-house provision and compare it to how much the outsourcing company might charge. If the latter is cheaper, go with the latter and you’ve saved money…nominally.
But it’s not as smooth sailing as that. There are a number of assumptions that, if tested are found to have been wanting in a number of areas. The first is that the state has the skills and competencies to negotiate and not get screwed over by a commercially-savvy private sector. (Think of all of the PFI deals of firms that were contracted to build & run schools and hospitals). At an operational level (for example with IT contracts) the ability to ask your in-house IT experts for help on the “soft” stuff that no contract could ever cover (such as how to do something on a desktop application) goes out of the window. As it turned out, in many teams that I worked in it was me that people came to for all of their “How do you do that on…?” needs. (No, I didn’t get paid extra for it).
There is also the issue of where the efficiency savings come from. In terms responding to changing needs, things inevitably involved negotiations with contract managers – an extra layer of bureaucracy rather than a simple chat with someone locally. The most ridiculous concept I found was the idea of phoning a call centre on the other side of the country in order to get a building fault next to me sorted. These outsourcing companies have become so big that they have centralised these operations because for them it’s cheaper on paper. When giving a particularly bad piece of feedback in one case, their response was “Well our response time was within our SLA [Service Level Agreement]” – i.e. as far as they were concerned me being delayed/annoyed at their slowness was not a problem for them because they had met their contractual obligations. As the monopoly supplier, why should they care? It’s not as if I could have done anything about it.
One of the sights that continued to depress me throughout my time in the civil service – in particular in London – was the clear dependence on low-paid migrant workers in a number of areas knowing that the heads of the companies that they were working for were making small fortunes. The old hands in the civil service told me of the days when people such as the security staff, the cleaners and the canteen staff were all civil service, afforded the same dignities and protections that being a civil servant afforded. Being a public transport user both commuting and during my time living in London, I would regularly see what The Evening Standard described as “London’s underpaid army of the night”. It is this that is a huge issue for me – but one that is unlikely to be built into future contracts. Let me explain.
As far as the contract managers and negotiators are concerned, all they need to look at is the bottom line – looking nervously over at their shrinking budgets. What might suit their budget may conflict with other things the government wishes to achieve. For example a “value-for-money” contract may often mean the contractor paying a low hourly rate to its staff. That low hourly rate may mean workers have to work long hours and/or more than one job just to make ends meet – especially in a city as expensive as London. What does that mean for their health? What does that mean for their families? (Especially if they have children.) Wouldn’t it be better if these contractors paid their low paid staff more in order that they didn’t have to work such long hours and/or take on more than one job? What would the impact be on their health? Would it allow such people to have more time for their friends and families – and for their communities?
What we don’t have in all of this is a comprehensive set of data and empirical evidence comparing in-house vs outsourcing. Whether we ever will have one remains to be seen. I imagine that there will be intense debates as to where to draw the ‘value for money’ line. Should it be purely on narrow lines of A vs B, or should the net be cast wider? The Government has already incorporated sustainability into its contracting framework, and there’s now greater pressure for other things – such as the hiring of apprentices to wider UK economic benefits to be incorporated in some procurement exercises.
Are there lines in the sand which should not be crossed?
I think there are. I’m against the use of the private sector in our criminal justice system where it involves the involuntary incarceration of individuals. I remember as a teenager being horrified that a private company (Group 4) had won a contract to transport prisoners. I became aware of it because of high profile prisoner escapes and could not understand why a private firm was transporting prisoners. Hence the prospect of private contractors having the powers to detain people is something that horrifies me. The police have enough problems to deal with as it is (whether dealing with crime to the fall-out from the Leveson revelations) without needing to deal with this.