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
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.