Government should choose outsourcing contracts based on the quality, not cost
If and when the Brexit debate ever ends, politicians will return to the challenge of improving domestic politics.
And one of the main questions will be the role of private companies in delivering public services.
Overall, the government spends almost £300bn per year – or around a third of its total budget – on partnerships with firms or charities.
In practical terms, many public services depend on these partnerships for their day-to-day running.
In recent times, that spending has been questioned by both opposition and the government. In fact, last week, Labour shadow ministers went so far as to promise to ban outsourcing altogether.
The Ministry of Justice took the troubled Birmingham Prison back under public sector management, after being run by a private company since 2011.
Certainly every decision to outsource a private company should be justified.
The chief inspector for probation services argued that it is simply too hard to measure prisoners’ rehabilitation in contractual terms. As a result, the outsourcing of the service has led to the overall service underperforming.
Government needs to do much better when it comes to “make or buy” decisions – that is, deciding whether a service is more suited to being provided directly by government, or an external provider.
Recent research from think tank Reform has found that current guidance in government is limited and potentially biased in favour of outsourcing, which could be responsible for mistakes.
More positively, a greater push towards choosing providers on their wider social value – such as whether they recycle or pay a living wage – is a good way to improve outsourcing overall.
Making this common practice would help prevent contracts being awarded mainly on price, rather than quality of provision.
A move towards greater social value in contracts could also push wider public sector aims, such as increasing local employment rates and the growth of SMEs.
Croydon Council, for example, encourages companies with public sector contracts to employ local labour on a living wage.
Outsourcing can also be used strategically to boost entire local economies that are underperforming. Preston City Council is the poster child here. By encouraging local institutions, such as the university and hospital, to buy products and services locally, it has managed to add an extra £70m to the local economy.
Critics of social value say that it is too hard to measure, arguing that things like environmental wellbeing and good work are not quantifiable in the way cost and traditional outputs are.
Admittedly, these things are harder to account for, but it is certainly not impossible. Values such as equal pay, workforce diversity, and the use of renewable energy are already being measured.
For example, the RAF Marham base in Norfolk recently contracted 95 per cent of electricity from locally generated biogas on account of social value.
Whatever happens with Brexit, governments should focus on delivering value for money for citizens. “Social value” and better “make or buy” decisions will make a difference.