Daily Archives: July 14, 2013

The accusations of overcharging for the electronic monitoring of criminals by two of the UK’s largest outsourcing companies have revived questions about the risks and benefits of using the private sector to deliver public services. But it would be wrong to use the cases of G4S and Serco, and their contracts with the Ministry of Justice, to condemn the industry, especially before an investigation of the circumstances has concluded.

In 2008 I led a government review to define and assess the UK’s fast-expanding “public services industry”, the name given to the sector that provides facilities to the government and runs, for example, prisons and social care homes on behalf of the state. It revealed a growth sector with more than 1m workers and an expanding volume of exports. Our review of the research also found that, on average, there is a 10-30 per cent saving on the cost of public services, with no apparent decline in the quality of provision. Indeed, in many cases, the quality of service improved.

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Perhaps the most surprising finding of the review was that the benefits realised through outsourcing were achieved even when the incumbent public-sector provider won the bid. In other words, the very act of forcing existing providers to justify their costs and benefits led to a leaner government. It was the introduction of “contestability”, rather than competition, that brought benefits. The process of writing bid documents, clarifying the desired outcomes of the service, assigning clear accountabilities for risks and fixing a timetable for making decisions provided a focus and managerial clarity that is often lacking in public-sector operations.

Successful outsourcing requires expertise on both sides of the deal. The government commissioners need to be clear in their contract specifications and neutral in their selection process. The winning bidder needs to maintain an open relationship with the commissioner after the contract is awarded so that any problems can be identified and resolved quickly. When things go wrong, as in this case of criminal tagging, the actions of both public and private parties need to be examined to find the root cause, assign accountability and draw lessons for the future. If that had been done after the G4S debacle over security for the Olympic Games, perhaps the current problems would have been spotted sooner.

One of the crucial benefits from outsourcing is innovation in service delivery. When a private firm wins the contract and takes over the existing staff, it often finds the best ideas on how to improve the service come from those staff. A survey undertaken by Serco of public-sector managers who had transferred to the private sector through outsourcing found that 93 per cent agreed or strongly agreed that “I have more autonomy than I had in the public sector” and 95 per cent said that “the transfer of the delivery of public services to the private sector resulted in improved (or significantly improved) service quality for the service users”. Even accounting for some bias in the sample, this is a strong endorsement for outsourcing from those with direct experience of service delivery in both sectors.

There is also some direct evidence from consumers. In 2007 the National Consumer Council surveyed users of three public services for which there are providers from the public, private and voluntary sectors. The private sector had the highest consumer satisfaction scores for domiciliary care for older people, the voluntary sector was favoured for employment services and those two sectors tied for social housing services. The public-sector providers came last in all three cases.

No doubt there is a need for more evidence from recent experience on the benefits and risks of outsourcing the delivery of public services. But in many respects the rationale for outsourcing in the public sector is the same as it has long been in the private sector where the practice is well established. Using a specialist provider whose reputation and share price are on the line, commissioned and monitored by an in-house procurement team, results in higher reliability, better quality and cost savings – it is better than doing it yourself. It’s a hat-trick too good for the public sector to pass up, especially when money is tight.

The writer is a former member of the Bank of England’s Monetary Policy Committee and led the Public Services Industry Review (2008) for the department for business

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