BSA Blog: Opportunities for business services in public service delivery

  • BSA staff
  • 23 Apr 2015

The theory behind outsourcing is simple. You have a service to provide but, for cost, capability or capacity reasons, cannot do it yourself. Therefore you contract someone who can: at lowest cost, offering high quality, and with experience in that field. Their profit levels are balanced by their need to be competitive which also drives efficiencies and innovations in their contracts.

Given that most would accept that it is not feasible for the government to carry out all of its functions directly, outsourcing seems the obvious solution to provision of service without detriment to the public, either financially or in terms of facilities.

So why then is talking about outsourcing public services so taboo? Those in favour of outsourcing, whatever their political leanings, are all too used to accusations of undercover privatisation, wasting taxpayer money, and undermining core services. Even supporters will concede there are issues around transparency, the public-private relationship and workers’ rights that require improvement.

But at the most basic and visceral level, the main objection to outsourcing is that private companies are profiting from services which people consider their right as taxpayers and citizens. And, superficially, this seems fair. After all, it is a government service, it is public money being spent to provide it, and therefore in an ideal world it should be operated not for profit.

In reality however, it’s not a winner-takes-all scenario.

We live in a society that is extremely diverse, developed and sophisticated and we expect our government to reflect that. The state provides core services from policing and education, to health and infrastructure. This huge remit of services underpin the smooth operation of the country and is, predictably, the primary expenditure of any government.

However, the public sector lacks a fundamental driver of efficiency, quality and innovation: competition. Competition is what drives private companies to invest in cutting-edge technologies, to streamline their workforce, and to specialise their skills. Competition is a way of ensuring not just that you get the job done, but that it’s done to the best ability of those involved. By introducing competition, through tendering to the private sector, the government is able to stimulate and incentivise better outcomes that it, by nature of being a monopoly public body, cannot deliver.

Therefore it is not constructive to look at outsourcing in terms of the profit it makes private companies, but in terms of what it costs, or saves, the government.

An independent review by the last Labour Government found that “the cost savings from competitive tendering to be between 10 percent and 30 percent (including when an in-house team won the bid).” And in 2013 the National Audit Office concluded that “contracting out can significantly reduce costs and help to improve public services”. So while private companies are undeniably profiting from outsourcing, so are the government and the public.

Of course there are caveats: transparency and accountability is vital in ensuring that there is public and government confidence in the process and model. Equally the need to monitor workers’ rights, as in any sector but perhaps especially when they are working on public services, is vitally important. But there are already significant moves towards greater openness and improved conditions for private sector workers driven by better practice throughout the outsourced services as a whole. Simultaneously, the government is making progress in becoming a more informed customer, understanding better its requirements when it goes to contract and dealing more practically with private partners.

These factors, when achieved, enable outsourcing at its best: with public services being delivered with efficiency, excellence and to the benefit of both the public and private sectors. Service provision, essentially, is not a zero-sum game, and if got right, outsourcing public services can be a win for everyone.

  Related topics: Procurement, Public service reform, Public spending, Local Government, Economy and growth