Open door policy

Outsource iStock 000007727531XSmall 146x219The CBI has made some bold claims about the savings that can be made by opening up public services to independent providers. Judith Barnes analyses its report.

On Monday the CBI published Open Access, a report building upon the Coalition Government's aspirations for broader provision of public services, as set out in the Open Public Services White Paper, published in July 2011. The CBI recognises the need for significant changes in how services are to be provided to take account of the financial environment, major demographic changes and to transform them to better meet demand/need by stripping out waste and stimulating innovation.

The report outlines the CBI sponsored research by Oxford Economics across 20 service areas that suggests upwards of 11% (to circa 20%) savings, worth £2bn, could be generated by opening up these public services to competition from independent providers. Applying the same principles and calculations across the estimated £278bn of public services the CBI believes could feasibly be fully opened up, would deliver savings of £22.6bn.

The report recognises the difficult economic circumstances we all face and acknowledges that the private sector does not always get things right - John Cridland, Director General of the CBI remarks in his Foreword that recent high profile failures in the private sector makes the case for this 'open' agenda more difficult. Yet the report also calls on the Coalition to urgently set out where it is prepared to end majority state provision.

Not surprisingly the CBI report advocates that the Government should:

  • Express a clear vision for how public service markets will operate in future;
  • Create a transparent market place to allow commissioners to compare performance and providers;
  • Establish mechanisms to address provider failure and maintain service continuity;
  • Promote contracts that are structured to focus on outcomes;
  • Ensure the public sector has the right mix of commercial skills to commission effectively;
  • Create effective government engagement will all types of provider.

Two areas of particular interest were the management of social housing and hospital facilities management that were responsible for half of the savings set out in the report (across a range of functions including local government, health, prisons, schools and Police). Savings of 10% on new FM outsourced hospital services contracts are also said to be capable of generating £3.4bn savings pa.

But it also endorses the value of the 'Place' based approach to sharing resources and collaborating to achieve better service co-ordination and provision, particularly in areas of complex need, where the focus on outcomes can potentially deliver significant savings through early intervention and preventative strategies.

Both the Government and the CBI recognise the need to invest in better commissioning skills in the public sector and to promote the adoption of new more innovative ways of working eg in relation to payment by results and through Social Impact Bonds. Here the Local Government Association has risen to the challenge to share information and support skills gaps in procurement teams through the Procurement Pledge.

Comment

The choice of the 20 services outlined in the report seems to include some slightly strange functions, such as waste, where it could be argued there is a mature market (47% outsourced) and the management of 5.3m units of social housing. This has been categorised as a local authority function worth £4.6bn pa, which could generate prospective savings of 15% equating to £675m.

Many would argue that the management of social housing is already in the hands of diverse providers, with local authorities no longer being the dominant providers (being responsible for the management of only 800k homes). Registered Providers of social housing such as housing associations, with their largely independent boards and structures (often formed as trusts and charities) now provide the most homes, with many serving diverse needs for different (and sometimes challenging) parts of the community.

School catering is also shown as a prospect for significant savings, where 73% are said to be delivered in house. The report considers that at least 5% of the £1bn cost could be saved. This would be a controversial area to look for savings. Without condoning any inefficiency, many would argue that more investment is needed in school meals to ensure that healthy options are put forward. How do we limit private sector competition to only the "right" issues?

The case studies in the report draw more on the larger outsourcings that have worked, as opposed to those that didn't, such as Southwest One. Clearly there is best practice in all sectors for many services, and it would be wrong to be dogmatic about who should provide services. But there are cases of contractor default and insolvency (eg Connaught/Southern Cross) to consider. The report does not advise how the public sector should manage these. In some services (and care homes would be a good example) default is simply not an option.

We also have to be careful to compare like with like. Public services with the same names may have very different costs for reasons that are not to do with efficiency. Even for, say, waste collection, unit costs between a densely populated urban authority and a rural authority may be quite different. It isn't necessarily possible to read across from one to the other to identify "savings".  

Another of the flies in the ointment is that the projected savings appear to build in productivity improvements of up to 15% - in one case where savings have already been realised - forensic science support services for the police.

In local government there has been a recent trend to insource a number of outsourced arrangements in order to provide more flexibility, avoid rewarding 'failures' through incentivising the wrong behaviour of service providers and to allow better control over investment for the future in new transformational ways of working. Little is made of the fact that many of these savings would potentially be deliverable in any provider sector; including through in house provision, with more strategic input at an early stage in considering issues around service configuration and interdependencies both within the authority and with other public bodies.

One might ask whether the savings figures stated in the report have taken into account the extra costs of commissioning, procurement and service management/monitoring that would arise from greater outsourcing.

One area where more information and case studies may have been useful would be around the development of the social value aims of the recent Public Services (Social Value) Act 2012 and how diversity of provision through smaller and/or more specialist packages of services may promote better quality services and have a much greater impact on the local economy.

No doubt the publication of the report will stimulate discussion and debate around the future of public service provision, and that is good. Whilst some public bodies prefer outsourced services, there are equally some that prefer the in-house option. That sort of "competition" of approaches is exactly the sort of thing the CBI should celebrate. All private provision would be likely to be no better than all public provision.

One of the key questions that remains is how will the Government introduce some compulsion in this area, and how far might this go? The 'community right to challenge' under the Localism Act 2011 is unlikely to result in a flood of new outsourcings in local government. It looks to me as though this will be achieved through the requirement for 'open commissioning' policies and perhaps the book should be opened on when these requirements and some element of compulsory service provision will be introduced.

Judith Barnes is a partner and head of local government at DAC Beachcroft. She can be contacted on 0113 251 4712 or by This email address is being protected from spambots. You need JavaScript enabled to view it..

Also from Judith: Does the Open Public Services White Paper herald a return to compulsory tendering?