Wednesday, 4 May 2011

Guest blog: falling out of love with outsourcing

While Barnet council continues to blunder into a brave new outsourced world, even former privatisation enthusiasts are having second thoughts. John Burgess, secretary of Barnet council Unison branch, has produced this roundup of information and news items.
Privatisation special?

Today I have been inundated by emails highlighting a number of reports about privatisation of public services. It is very clear from reading flawed options appraisals and business cases for One Barnet that no evidence has been produced to substantiate the exaggerated claims that privatisation of Barnet Council services and staff will deliver savings.

Barnet UNISON has produced almost 30 detailed reports on easyCouncil, and recently submitted two detailed reports on the business case for the privatisation of Development and Regulatory Services (DRS).

I want to quickly remind people of what the reports said.

Professor Dexter Whitfield (European Services Strategy Unit) was commissioned by Barnet UNISON three years ago to provide consultancy support for the EasyCouncil/Future Shape/One Barnet programme (you can view those reports here).

Dexter Whitfield said this about the DRS business case:
“The DRS Business Case has a superficial appearance of authenticity but is fundamentally not fit for purpose and elected members have a duty to decide it is non-compliant.

"There is clearly a high risk that user charges will be increased in order to achieve the income generation targets.”
Adrian Waite (Independent Consultancy Services) was commissioned by Barnet UNISON to examine the financial aspects of the business case. Adrian is a highly experienced and respected local government finance expert. He has held a number of senior roles in local authorities including Director of Finance and s151 Officer and is a fully qualified member of the Chartered Institute of Public Finance and Accountancy.

Adrian Waite said this about the DRS business case:
“During the 30 years that I have worked in local government finance as a local government officer and management consultant, including some time as Finance Director of a Borough Council, I have seen and written many business cases, business plans and options appraisals.

“This business case is remarkable for the apparent lack of robust evidence to support its main conclusions that £28million of savings and increased income is achievable and that this can only be delivered through outsourcing.”
To read Dexter Whitfield’s report click here.

To Read Adrian Waite’s report click here.

Back to the articles

It has been astonishing to read the number of articles about the risks of privatisation in the national media. I had to keep checking that they had not been written by UNISON.

Lots of Barnet council staff believe that One Barnet is simply politically ideological. Have a read of the following articles and see what you think.

1. Outsourcing "not an inevitable response" to austerity, says Socitm report

A new warning note about the risks of outsourcing IT appears in a briefing from Socitm Insight, the research arm of the public sector IT managers' association.

Costs of Outsourcing - Uncovering the Real Risks accepts that there are good reasons for outsourcing, especially for smaller organisations. However, outsourcing a major component of the ICT service or even the whole service "is a major commitment and fraught with risk".

According to the report, Socitm's benchmarking service, which has compared costs and user satisfaction over a decade, shows that, when comparing the costs for any service, most elements will be more expensive if outsourced. The risks associated with benchmarking begin at the tender stage when suppliers will benefit from being experts at the process of negotiating contract terms, in contrast with the local authority that will go to market only rarely for a major outsourcing, the report says.

The briefing also counsels public services to avoid the mistake of outsourcing information assets alongside their technology.

"Outsourcing should not be considered an inevitable response to austerity," says Martin Greenwood, author of Cost of outsourcing. "Even smaller organisations that need to gain economies of scale, and struggle to keep up to date with technological development, should consider collaboration and sharing with other local public services as a genuine alternative. If they do take the plunge into outsourcing, they should make sure they are aware of the pitfalls and know how to avoid them."

2. Socitm report highlights outsourcing risks

The report, Costs of Outsourcing – Uncovering the Real Risks, examines the risks in detail and offers advice about how to tackle them.

Socitm points out that although there are often good reasons for outsourcing, especially for smaller organisations unable to benefit from economies of scale or afford to change technology as regularly as their larger competitors, "outsourcing a major component of an ICT service is fraught with risk...”

It goes on to say:
“when comparing the costs for any service, most elements will be more expensive over a 10-year period if outsourced."
This may seem counter intuitive, but report author Martin Greenwood said:
"It is a myth that outsourcing is cheaper, across most areas it is more expensive and people outsource for a range of reasons other than cost."
He added:
“Another risk lies with outsourcing information assets alongside technology, as the ability to exploit these is a key source of efficiency savings and even advocates of outsourcing advise against this.”
Read full article here.

3. Coalition scales back privatisation plans over "excess profit making" fears

The government has privately admitted it is scaling back its plans to privatise swaths of the public sector for fear of appearing to be in favour of private companies excessively profiting from the taxpayer.

A leaked memo of a meeting between business chiefs and the minister for the Cabinet Office, Francis Maude, says there will be "no return to the 1990s" and wholesale outsourcing. Maude is preparing a white paper on public services – delayed since February – setting out the future direction of public services, which is expected to contain plans to match private sector companies to charities and volunteer groups to run public services.

Read full article here.

4. Plans to outsource public services "scaled back"

“The government is scaling back plans to use the private sector to deliver public services", the BBC has learned.

Leaked documents suggest ministers have decided the "wholesale outsourcing" of public services to the private sector would be politically "unpalatable".

Ministers instead want to use more charities, social enterprises and employee-owned "mutual" organisations.

Outsourcing was meant to be a key part of the government's drive to cut costs and reduce the UK's budget deficit.

The note, obtained by the BBC, is marked "strictly private and confidential" and was drawn up by the CBI as a record of the meeting.

It says:
"The minister's messages were clear cut... the government is committed to transforming services, but this would not be a return to the 1990s with wholesale outsourcing to the private sector - this would be unpalatable to the present administration.

"The government was not prepared to run the political risk of fully transferring services to the private sector with the result that they could be accused of being naive or allowing excess profit making by private sector firms.”
To view full article click here.

5. Leaked government documents suggest shared services are the future

Leaked documents have cast doubt on the government's enthusiasm towards wholesale outsourcing to help it cut public sector costs, and suggest that joint ventures would be a more palatable remedy to excessive government costs.

According to a BBC report, leaked documents suggest ministers view the wholesale outsourcing of public services to private companies as "unpalatable".

To view full article click here.

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