Significant demand for public sector outsourcing forecast

15 June 2011

15 June 2011 | Angeline Albert

The value of services outsourced by local authorities will increase by £40 billion in the next five years, it has been predicted.

Colin Cram, managing director of consultancy Marc1 and author of a report by the Institute of Directors into public procurement, said while the value of outsourced services is currently around £80 billion a year he expects this to rise to £120 billion by 2016.

Consequently councils need to work together more effectively to avoid potential problems, he told delegates at the Public Procurement Show in London yesterday. “Local authorities really need to coordinate their demand and plan ahead,” he said.

“Councils must take a realistic view of how much outsourcing they do and not just have a big outsourcing strategy without assessing whether it’s the right thing to do”.

“In one or two years time it looks like there is going to be greater demand from local government for outsourcers than supply. This is good news for suppliers, not so good for local government. The worry is that competition will be between councils trying to get private sector firms to take on work, and not between outsourcers.”

Cram also said one threat to successful outsourcing is the over-optimism and naivety of chief executives around the topic, who see it as a path to big savings. “If they spoke to other chief executives who’ve been involved in outsourcing they may hear a different story.”

He added this failure to meet expectations was often caused by poor due diligence. This includes weak risk analysis, no clear objectives agreed at outset, no consistent support from the top, in-house staff undermining the outsource firm by duplicating outsourced work, poor understanding of the work to be outsourced, unclear outcome specifications, over-confident suppliers who fail to deliver, no plan for the end of the contract, no exit strategy, insufficient retention of in-house expertise, “outsourcing a mess” and a lack of “future-proofing” to ensure the contract covers a changing business environment. Failure to bring procurement in at an early stage into discussions also hindered outsourcing efforts.

Councils should also assess alternatives to outsourcing to help. In some cases, process improvement, benchmarking, collaboration with other organisations or staying as you are is a better option.

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