Government 'must strengthen commercial skills to make outsourcing work'

The Institute of Government said senior politicians had consistently overstated how much money was saved by outsourcing services – but in its study on whether outsourcing has been effective, it also said that the Labour Party policy of bringing public services back into government hands by default would be a mistake.

The report (96 page / 1.21MB PDF) said the government’s ‘Outsourcing Playbook’ published in February 2019 would be a major step towards addressing many of the problems it had identified. However, the institute added: “But several of its stipulations were policies already and have been routinely ignored, partly because government departments have lacked the capabilities or incentives to implement them. Setting out best practice alone will not be enough to change behaviour and culture that is ingrained.”

Outsourcing expert Simon Colvin of Pinsent Masons, the law firm behind Out-Law, said the playbook would be a crucial tool in the future.

“The playbook really sets a very good baseline for how decisions are made around outsourcing, and how outsourcing arrangements should take shape. Coupled with better data analysis of what works well and what doesn’t work well, that will drive better outcomes,” Colvin said.

“It really is going to need to become a kind of Bible for how those involved in outsourcing assess what is good and what is bad. As outsourcing moves on, if there’s adherence to the playbook this will ensure that the best decisions are made and the best outcomes are secured,” Colvin said.

The report recommended that HM Treasury should ensure at the 2020 spending review that the Cabinet Office’s outsourcing team had enough funding to implement the playbook and train contract managers. There should also be an annual progress review of the playbook, assessing the extent to which different measures have been adopted and the performance of complex outsourcing projects.

The institute said permanent secretaries within government departments should work with commercial and human resources directors to ensure that contract managers were involved in contract negotiation, and also that all public bodies should identify where they lacked skills and experience.

In order to improve scrutiny and accountability of outsourcing decisions, the report recommended that the Cabinet Office should adopt a ‘comply or explain’ approach to the Outsourcing Playbook, and select committees should scrutinise plans for significant projects against the principles in the playbook.

Select committees should also recall ministers and officials who have subsequently left their post to answer questions about the decisions made during the inception of a project, especially where subsequent under-performance or failures have resulted in harm to the public, the institute recommended.

The report also said there should be improvements in the evidence that underpins outsourcing decisions, with the Cabinet Office leading an effort to fill “fundamental gaps” in evidence on outcomes and effectiveness of outsourcing. Information should be collected centrally and

contracting authorities should work with suppliers and external experts to develop rigorous case studies of contracts, including in areas where outsourcing has worked, the report suggested.

The institute found that outsourcing waste collection, cleaning, catering and maintenance services had delivered significant savings and benefits, and bringing these back into government hands could lead to worse and more expensive services for the public.

There was mixed evidence of the benefits or disadvantages of outsourcing other services, including adult social care, employment services, health care and prisons.

The Institute of Government said bringing public services back in-house would help in areas where outsourcing had failed, but risked “throwing away the significant benefits that outsourcing can deliver”.