BBC Radio 4’s “File on Four
” investigated outsourcing in the light of failures such as the collapse of West Coast mainline plans and the G4S Olympic fiasco
. The rush to sign outsourcing contracts, the BBC concluded, could lead to undesirable consequences such as being tied into contracts which delivered inferior services and offered poor value.
Margaret Hodge, chair of the Public Accounts Committee (PAC), said there were huge pressures to reduce costs by outsourcing but feared “due diligence” was missing. The pressure to expedite contracts quickly brings dangers. Tim Banfield of the National Audit Office(NAO) said in-house savings take a long time but outsourced contracts showed savings immediately the contract was signed. This could look good on paper but “the reality might be quite different” he warned.
Banfield said the NAO was researching public sector procurement. It was too simplistic, he said, to argue that the public sector always gets it wrong while the private sector always gets it right. The NAO hadn’t seen sufficient evidence that savings could be made by outsourcing although it hadn’t yet completed its work. The BBC noted a trend: local authorities (LAs) were returning services in-house claiming they could provide services more cheaply than by outsourcing.
The BBC described how Ministry of Justice outsourcing led to chaos in court translation services and achieved poor value for money in tracking offenders. One of the firms contracted to provide tagging was Serco Monitoring which purchased its IT services from Serco Geographics. 60% of the substantial profits of Serco Geographics came from the Ministry of Justice contract and much of these were, quite legally, paid to Serco Ltd in dividends. The Network of Forensic Accounts described how profits can be “shuffled” between subsidiaries – this could make it appear that a subsidiary was producing a lower profit thereby being able to show it was making less money out of its business than was the case.
of Policy Exchange had investigated how good a deal the Government was getting from existing “tagging” contracts. He had found it difficult to discover whether tagging contracts were value for money because neither the contracts nor the figures were public. He said the cost to the UK taxpayer was 60% higher than for a similar contract in the USA.
Margaret Hodge said the PAC would look at the Serco tagging contract and added that such cases showed transparency was essential to gauge whether a fair profit was being made at a fair price. Such contracts should not be hidden behind a “veil of secrecy” – commercial confidentiality was used as an excuse for hiding data from taxpayers who paid the bill.
Calls for more outsourcing are becoming increasingly loud. At the same time doubts
are being expressed about transparency and effectiveness. And when these calls cover services for vulnerable people – particularly health, social care and education – then it’s essential that the risks in achieving value for money from delivering services through markets are properly understood and evaluated.