The Government vows to make outsourcing work. Can it?

The Government has published its ‘Outsourcing playbook’, an effort to stop cocking up major contracts. ‘Playbook’ – isn’t that so, well, ‘hip’? (‘Outsourcing’ here is used much more widely than I would, to apply to any service that Government contracts for, including those that have never been done in house, and which it is utterly inconceivable that they should ever be done in house, such as construction of prisons, tempting though it is to envisage mandarins laying brick upon brick, like Ivan Denisovich.)

It’s all good stuff, based discussion with contractors (Rupert Soames of SERCO has been bravely saying this sort of thing for some years) and on learning from what has gone wrong with so many major contracts in recent years:  electronic tagging (3 times), Carillion, probation, Birmingham prison (and that’s just the MoJ).  

The text is supplemented by voluminous ‘toolkits’ (sometimes mere ‘tools’), templates, scorecards, guidance notes, Green and indeed Orange Books, Codes of Conduct.

The document sets 11 key principles, which I will translate into English:

1. Publish pipelines i.e. say what you think you might be buying some years ahead, so potential suppliers can measure future opportunities and start talking to Government well ahead of time, and not just look at each contract as a one-off
2. Assess market health i.e. look at the number and capability of suppliers, and think how best to match contracts to that (or maybe draw in new suppliers)
3. All big projects to have a Project Validation Review i.e. experts brought in by Cabinet office will mark your homework
4. Make v Buy assessment i.e. explain why are you outsourcing, if it is or can be done in-house?
5. ‘Should cost’ modelling i.e. relating bids to what your own costs are and being sure you understand how bidders could be much cheaper than you
6. Pilots i.e. when you’re outsourcing a complex service for the first time, pilot it first, rather than going for a big bang (wake up Grayling, at the back there!)
7. KPIs i.e. you must have appropriate and proportionate measures of how well suppliers do the job, that will be made public
8. Risk allocation i.e. who bears which risk to be assessed will be “subject to greater consideration and scrutiny”
9. Pricing and payment will be “subject to greater consideration and scrutiny”
10. Assessing the Economic and Financial Standing of Suppliers i.e. assess risk that supplier may go bust
11. Resolution planning i.e. work out what to do if supplier does go bust.

It’s is basic common sense. Indeed, some of it is quite banal.  We need measures of performance – are we really stating that, as a new insight, fully a third of a century after Thatcher’s Financial Management Initiative made that its central theme? Risk allocation, payment mechanism and pricing are to be ‘subject to greater consideration’? Verging on bathos. ‘We screwed up a lot, but in future we will give everything greater consideration’. So there!

Still, if actually followed, it would have prevented many previous disasters. It’s useful to test the document against that walking, talking procurement disaster, Chris Grayling. Principle 6 would have forced him to pilot probation outsourcing (as we did indeed pilot prison outsourcing, in the early ‘90s). Principle 4 would have forced him to justify his belief that companies with no experience of running probation services, indeed that were only formed to bid for these contracts, could nevertheless be assumed to do much better than the public sector (the reverse has since been proved by repeated audit and inspection). Principle 11 would have required him to explain how services would be maintained if the contracts proved impossible and/or contractors went bust (as has indeed happened). Principle 2 would have stopped dead successive attempts to procure tagging services using a technology which did not then exist and using a delivery structure that was a nonsense in techincal and oepraional terms. Might also have stopped him to contract for ferry services with a company that has not got, and never has had, any ferries. And so on.

Why, then, am I less than optimistic that the future of outsourcing is rosier in the light of this document?

Mainly because we have been here before. This exact same spot. Instructions, guidance, bought in expertise, training, independent external checks at different stages, you name it.  Take, for example, the Office of Government Commerce, established with much trumpeting in 2000, with its elaborate structures to ensure distinct roles and responsibilities for major projects, its detailed guidance notes, its hierarchy of independent expert Gateway Reviews. Or the Major Projects Authority, set up in 2011, to provide independent assurance at different stages of major projects.

And yet the disasters have gone on. You see, it’s not that people didn’t know they were doing the wrong things, and not doing the right things. They did know. They just didn’t take necessary action.

Examples from MoJ, where people knew what they should do, then didn’t do it:

1. Market assessment: from the outset of prison outsourcing (1992), we decided we needed at least 4 credible operators. But in the mid-2000s, MoJ let the market consolidate to just 3. Worried about this, Government repeatedly, over a very long period, invited new entrants to bid, and then always awarded contract to the big 3. Result: when SERCO and G4S were disgraced by the tagging fraud scandal, the market collapsed
2. On the disastrous probation outsourcing, Grayling simply bypassed the Major Projects Authority at a point when it should have independently assessed risk. The homework never got marked.
3. ‘Should cost’ wouldn’t have helped with the Carillion contract - because MoJ didn’t know what its in-house costs were
4. MoJ was busy piloting the novel Payment By Results mechanism when Grayling cancelled the pilots because he thought it so obvious it was a good idea that he didn’t see the need to test it out.

The question Government ought to be asking is, why, when we keep doing the same things to ensure things are done right, do they keep going wrong? That’s tricky to answer. 

Part of the problem is how far you can idiot-proof projects when you have idiots like Grayling in charge. Arrogant, bullying ministers who think it weakness to listen to advice. (As we all know, bullies are fundamentally weak people: strong ministers, like Straw, listen courteously to advice because they didn’t feel their manhood threatened by conceding the possibility that they don’t know everything. And if they are wrong, they want to know that now, not later.) Who exactly is going to face down the sublime arrogance of a Grayling (and don’t suppose there isn’t a limitless supply of them on both sides of the House)? The centre of Government i.e. Cabinet Office and Treasury, simply isn’t strong enough, at official level, to say ‘no’ to such people? And at Ministerial level PM’s are more likely to listen to their loyal or at least essential political allies than to worried officials. Just look how May stands by Grayling  now, even after the ferry contract fiasco, the railway fiasco, the probation fisaco...

Another way into this is to ask is, what actually happens when projects go badly wrong? Well, usually the National Audit Office produce a report saying what went wrong (but never naming officials); the Public Accounts Committee have an enjoyable morning roasting the officials; a critical report is published: Government says ‘we are busy learning the lessons’; and those concerned sail on through their careers and into well paid retirement. And of course, if those responsible have moved jobs, or retired, when the auditors have finished their work years later, they aren’t even hauled before the Committee, they are never asked to explain themselves, as they have ‘moved on’. I am not a fan of management by scapegoating, having seen that practised close up by Michael Howard. We all make mistakes, and hopefully, learn from them, certainly I did, and anyone who says otherwise is a danger to himself and others.  But surely there is something wrong, if in terms of pay, promotion, career trajectory and retirement, there is no difference in the career path of those who hashed things up badly and wasted public money, and of those who did the job well and achieved benefits for the public?

Then there are problems of expertise, and culture. Is there, even now, enough procurement expertise in Government, and of the right calibre?   Earlier this decade, inquiries into MoJ management of the tagging contracts, which involved officials paying out £200m over many years or work which was never done, noted that this occurred against the background of severe cuts in procurement staff, difficulties in recruiting and retaining such staff – in 2009, MoJ did not even have a central procurement department (1). Maybe it’s better now but somehow, with the cuts in administration spending in Departments, I doubt it.

Then there is the Civil Service culture,  which traditionally  has found ‘policy’ more attractive and career-friendly than the ungentlemanly tasks of running things, or buying things. Thus, the risk is that the bought-in expert is always positioned slightly to one side, rather than inserted into the heart of the business, as they surely should be in a Department like MoJ, spending over   half its entire budget on contracts (2).

Looking to the future, there are four reasons why I don’t see a bright future for outsourcing, even if Corby never graces No.10.

First, the boom is over. Around one third of Government expenditure is on outsourced service – a fantastic amount. Plainly, there can be only a marginal further increase in outsourcing volumes in future. (And all those contracts, however imperfect, are out there now. How does the new ‘Playbook’ help with that?)

Second, related to that, Government has learned so little from this vast experiment. To give a couple of examples: DH told me that they have no research to point to, in house or external, that compares public and private healthcare providers. They simply do not know; and it hasn’t occurred to them that they should know. Likewise, on prisons, there has been no substantive study by Government comparing public and private operators since 2000 (3).  There is a vast amount of experience in Government, and local Government, about making, shaping, and managing the many utterly different types of outsourcing market – from the single customer/3 supplier model of prisons to social care, with hundreds of suppliers, hundreds of customers and millions of users. But what has Government learned from all that experience? Practically nothing. The Institute of Government, and NAO, have done some good work examining different sorts of outsourcing and different kinds of quasi-markets, but it never seems to have occurred to Government itself to reflect on such matters.

It is incredible that there simply does not exist a body of evidence to tell us where and how outsourcing has brought benefits, and where it has not, in what sectors or environments it appears to work and where not, what sorts of market work and how are markets best reregulated, and so on. It is willed ignorance on a colossal scale, and surely the root reason is that the advocates of outsourcing fear that impartial assessment would show, in many cases, that it has not brought any public benefit at all, indeed has done real damage. The consequence of this willed ignorance is that the case for outsourcing is not made, and that the practice of outsourcing does not improve.

Third, it is unclear how outsourcing can work well in an age of austerity. If there simply isn’t enough money to run services to an adequate standard, how can outsourcing help? In prisons, we showed in the 1990s and 2000s that private companies could run decent prisons at lower costs because the existing public service was so wasteful – we didn’t use staff efficiently, overpaid many of them, dint have the slightest grip on procurement, and so on. There is no reason to think that the problems of the NHS or schools are down to too many doctors and teachers, paid too much, not working hard enough. And there is unbelievably, almost no evidence that the private sector can run services better. In which case, what is the case for outsourcing?

Fourth, the game is completely lost politically. Poll after poll (4) shows remarkably high levels of public opposition to many forms of outsourcing, and remarkably high levels of support for Labour’s promises to re-establish public sector monopolies. The argument that outsourcing can work better for the public than state monopoly has been lost. And that has been entirely an own goal. It has been lost because Government has simply asserted private sector good, public sector bad, without ever bothering to produce evidence. It has never explained to the public what benefits they are enjoying because of outsourcing. Yet at the same time the public see endless stories of corporate greed and incompetence, of Government botching contracts and contract management and then failing to do anything about it, of failing contractors bailed out by government.  

To me, as someone who believes that competition, properly targetted, intelligently and responsibly run, can in some cases do more for us than monopoly, this is  sad. Because it means that we will then go around the track again. Labour state as a self-evident truth the surely equally daft mantra, public good, private bad. A generation who never knew British Rail at is worst, never waited for months for the Post Office to put a phone in, never knew the scandal of the publicly run prison service of the 1980s, or the horrendous NHS waiting lists of the early 1980s, will have to learn again that monopoly power tends to be high cost, tends to be self-serving, is often resistant to new ways of doing things, and is often in reality barely more accountable than G4S or SERCO. Which is where Mrs Thatcher came in.


NOTES

 
 (1) Details in my book
(2) ‘Government procurement: the scale and nature of contracting in the UK’. Institute of Government, December 2018
(3)  The excellent comparative study of service quality by Alison Liebling and others was not conducted for Governmen. There have been no comparisons of cost since 2000
(4) Populus 2012, YouGov 2017. Actually the polls show the public to be much more discriminating than one might suppose.  They think it OK for buses and airlines to be run privately but not trains, phone services but not mail, banks but not the Post Office.