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Failures and fiascos in public sector outsourcing: will governments never learn?

A review of What a Waste: Outsourcing and how it goes wrong

Heather Connolly, Reader in European Employment Relations, Leicester Business School, De Montfort University

Heather ConnollyWith increasing numbers of failures and fiascos of outsourced contracts hitting the headlines, the question ‘when will governments ever learn?’ springs readily to mind. A hard-hitting new book, by researchers at CRESC/Manchester Capitalism, entitled What a Waste: Outsourcing and how it goes wrong have criticised the ‘disastrous’ practice of UK government outsourcing, but argue that the failures and fiascos are effectively pre-designed. The authors state that ‘there is an overall logic to the process which costs citizens because outsourcing is what happens at the intersection between the political convenience of the (central state) and the opportunism of outsourcing companies and investors’. Outsourcing allows the shift of blame to private sector providers, and government abdicates responsibility for providing underfunded services and ‘toxic activities’ (border control, for example) in favour of private firms with poor management control.

‘The franchise state which exists to award and monitor contracts at the same time strips itself of institutional resources and intelligence previously used to deliver goods and services. As outsourcing proceeds, the (central and local) state is increasingly disabled in that it no longer has the capability to deliver public services.’

This situation means that giant contractors and the state become bound together in a form of co-dependence and when it goes wrong the blame can easily be laid on outsourcing contractors or the individual public servants who wrote the contract, rather than the government. Contracts typically cover mundane activities which too often allow profit taking at the expense of the tax payer and the workforce by outsourcers who do not make capital investment or take market risk.

In the last few months there have been a number of failures and fiascos in public sector outsourcing contracts. In December 2015 a £160m contract between Cornwall County Council and corporate giant BT was scrapped following a High Court ruling. The 10-year deal, signed in March 2013, was for BT to run IT, human resources and other services for the council. BT tried to fight the Council’s decision to end the contract after only two years but a ruling was made against them stating BT did not provide ‘the service it had promised to the standard it had promised’.  Again in December 2015 an £800million older people’s care contract in Cambridgeshire ended after just eight months because it was ‘no longer financially sustainable’. These are some of the more ‘mundane’ failures that tend to slip under the radar, not to mention some of the more controversial outsourcing fiascos such as the recent G4S ‘red doors’ for refugees in Middlesbrough or the Clearsprings ‘coloured bands’ for asylum seekers in Cardiff.

What a Waste points out that there have been various experiments around outsourcing in local councils, notably in Birmingham and Barnet. Barnet was labelled ‘easyCouncil’ by critics that complained services resembled low-cost, no frills airlines such as easyJet. Other councils, such as Essex, Southampton City, Suffolk and Staffordshire have also taken up the outsourcing model.  However, as they allude to in the book, Northampton County Council (NCC) is taking the process a step further by transferring 3,850 of its 4,000 employees to 4 new dividend-paying service providers which would deliver all the council’s services, including social care for the elderly. The Chief Executive is pushing through with plans to begin outsourcing the services in a move which he says will make a £148m saving by 2020, though some fear the plan is a step towards privatisation.  Under EU Procurement Law these contracts will have to go out to tender after 3 years, so fears of effective privatisation are well-founded.

The ‘commission-only’ model being adopted by NCC is likely to be increasingly replicated in Conservative-controlled shires and urban areas. The fact that there is no real reflection as to how these activities will function under this ‘next generation’ council model is evidence to support many of the arguments in What a Waste.

‘The democratic tragedy of the franchise state is that today’s mainstream politicians are not protesting (or even examining) the outcomes of outsourcing but are planning to grant ever more local monopolies from which organised money can take profits (in many cases without the capital investment or revenue risk which legitimate capitalist profit)’.

In a context of austerity, TINA (There Is No Alternative) is brought to the fore in discussions around the need for cuts to local services, and therefore resistance feels muted. The authors argue that there is an urgent need for resistance around outsourcing as it is spreading though to sectors which should remain under some form of state control:

‘the failure of politicians and policy makers to protest outsourcing has become an urgent matter because the state has outsourced or is now outsourcing services which are part of what we call the ‘foundational economy’ in health, adult care, welfare and security. Many of these services are or will be used by most families or individuals because the foundational economy is the basis of material security and the infrastructure of civilised life for the whole population’.

The authors of What a Waste argue that government outsourcing should be curbed by politically agreed prohibitions on outsourcing which is not in the public interest. In an interview for the book one of the authors, Professor Karel Williams, put forward three principles for public sector outsourcing: firstly, no large scale outsourcing in local government where officers and members do not have the expertise to negotiate contracts; secondly, no outsourcing of ‘politically toxic’ services like border controls because government should take responsibility for what it does; and thirdly, no total outsourcing of any important service like provision of care homes because the public sector needs its own expertise. It seems unlikely that the current government will take heed of any of these principles.

What this book does not offer is a comprehensive strategy for resistance and the ways in which organised groups against outsourcing can fight the plans. Past experience shows that even where campaigns have had wide levels of support and have made small gains, they have not been sufficient to block major outsourcing plans from going ahead. A strategy of resistance needs a co-ordinated approach involving multiple groups which means drawing on the different sources of power both in and outside workplaces, organising in the community and through media campaigning and political lobbying.  Two key challenges for building resistance are first, the willingness to act, particularly among local government workers, where a culture of fear may be developed around whose job is ‘at risk’ as a result of outsourcing.  Second, with such campaigns comes the question about the alternatives to outsourcing.  Labour branded its approach to running Lambeth as the ‘John Lewis’ council operating on the basis of mutual and co-operative values. Is this the ‘least worst’ alternative that could be fought for at a local level?

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