First published in the Guardian Public Leaders network 29th Jan 2018, also published on De Montfort University’s Local Governance Research Unit blog 30th Jan 2018
Bad as it was for the public sector, the collapse of Carillion may not affect local government too badly. But if companies like Serco, Capita or Veolia were to fail, the impact on councils would be much more serious.
Carillion mainly ran large private finance initiative contracts – building hospitals, for instance. But firms like Capita, Serco and Veolia run a huge range of different council services, from IT and HR to waste collection, recycling, street cleaning and maintenance. If they were to fail, the risk to councils would be very high.
It has become increasingly clear that the business model around outsourcing – or managed services in local government speak – is fundamentally at fault.
Local councils have been under ever more pressure over the past decade to cut costs – and one seemingly straightforward way of doing this has been to outsource many services, particularly administrative services.
I first came across this in 2009, when I was working in the organisational development team at a large county council. We were looking across local government to find innovations in improvement and efficiency. Barnet council, dubbed “easyCouncil” for its strategy of providing a “no frills” service, had drastically reduced its headcount from 3,200 to just 322, mainly by outsourcing.
I could see this approach might solve some of the immediate issues councils faced, but I had a gut feeling that it just wasn’t the right thing to do.
To make running services cheaper than keeping them in-house, the only contractors able to put in competitive tenders were the giants, like Capita (in Barnet’s case) or Serco.
My own experience of working for a council with managed services showed that they compared poorly in terms of service and value to in-house services. The most frustrating aspect was that the terms and conditions were set by the service provider, with no flexibility if circumstances changed – until the contract came up for retendering. Councils often don’t have good enough contract management skills to avoid getting locked in to this kind of contract.
This placed unreasonable constraints on councils. One IT service provider, for instance, refused to enable staff to work remotely using their own equipment, even though this would be more efficient and staff were likely to have better quality laptops, such as MacBooks, at home.
It is easy to see why companies see government deals as a cash cow. Carillion, for example, continued to win contracts despite being in dire straits. Political pressure on the public purse means having to go with the cheapest offer.
I also feel uneasy about the fact that these decisions tend to be made without consulting either staff or residents. Handing over large service areas, without having an open dialogue about the potential risks and impacts with the community and local partners, seems wrong. Councils are not just bodies that commission and deliver services, they are a democratic, accountable level of government – and if the 2010 coalition government hadn’t dismantled the Audit Commission, which oversaw local government, we might have seen this coming earlier.
There is an opportunity for councils to learn from this and start reviewing existing contracts. But the truth is that there is no money to take services back in-house. And even if there were, it is an outdated model and would be a backward step, because too often in the past, in-house services have been inefficient too, and often also based on an inflexible approach. No one would benefit from going back to that.
There are other options, such as councils sharing services. Some councils have been working towards this for many years. West Devon borough council and South Hams district council, for instance, haveshared services since 2007. But this does require a great deal of effort and goodwill – and isn’t always easy to implement or even propose.
More could also be done across the public sector as a whole. By working more closely with key partners such as the NHS, councils can aim to pool assets and resources. Moves to do this are already under way in Greater Manchester and there are other examples. In 2016, for instance, NHS England, Public Health England, the Local Government Association, the Chief Fire Officers Association and Age UK published a joint statement setting out new ways to work together to improve public health.
At the very least, councils must learn from Carillion’s demise and develop stronger tendering processes and contract management skills. They must also prioritise working with contractors with a stronger public service ethos – and a greater commitment to service outcomes over shareholder value.
If all that happens, further damage to public services might be avoidable.