Reform submission: PACAC inquiry on “Sourcing public services: lessons learned from the collapse of Carillion”Read the full report
The public sector spends around £242 billion a year on independent providers. The extent of this spend is often not recognised and it is crucial that public services achieve value for money from outsourcing.
The principle of competitive markets is sound: opening services to competition is a powerful lever to reduce cost and increase innovation. How government executes this is rightly under scrutiny.
While there are many examples of successful practice, not to mention the unnoticed success of the day-to-day services that are provided in hospitals, schools and on streets, government does not always achieve value for money. Poor procurement practices underpin this. Officials do not always have the right skills, information or incentives to make sourcing decisions effectively. High churn leads to a loss of institutional expertise, learning and reduced accountability for services. A heavy focus on price has led to a race to the bottom in cost and reduced trust between government and suppliers. Aggressive risk transfer from government, including asking providers to shoulder unlimited liability, creates barriers to market entry. These issues have reduced competition and risk government achieving value for money.
These issues are not a reason to dismiss the outsourcing model. Rather recognising and responding to them is the first step to delivering best practice to exploit the benefits of competition on cost and expertise.