By Tony Collins
A group of councillors has found, after investigating several large local authority outsourcing contracts, that political stability may be a critical factor in successful deals.
Cornwall Council’s “Support Services Single Issue Panel” investigated outsourcing deals that involved Birmingham City Council (Capita), Liverpool City Council (BT), Taunton Deane Borough Council (IBM), Suffolk County Council (BT) and South Tyneside Council (BT).
The panel is not, in principle, against outsourcing. It found that,
“Information from other authorities has highlighted the importance of political stability for a project which will extend for many years. This has been the single most important lesson that they have learnt.”
In those councils that have an inherently stable majority of one particular
party, outsourcing has not necessarily been a problem. “Likewise it has not been an issue for those councils who have achieved a cross-party consensus, even where there has been a change of administration,” says Cornwall’s panel of councillors. But …
“For those councils who do not have a cross-party approach the process of going into a strategic partnership has caused significant problems; in some cases a polarised membership which has also impacted on their staff…”
The finding indicates that the risks of a large-scale failure of outsourcing contracts at Cornwall and Barnet councils – where political dissent has been marked – could be greater than its officials realise.
Cornwall may outsource a range of services, including IT, to BT in a contract that is likely to be worth at least £200m, and possibly hundreds of millions of pounds more, over 10 years.
Barnet has chosen Capita as its preferred outsourcing supplier as part of its “One Barnet” transformation programme. The plan includes outsourcing IT.
A need for cross-party support
The findings of Cornwall’s Single Issue Panel also suggest that the initial major decision to outsource may need a cross-party consensus to succeed..
“What has proved both corrosive and destructive is where a major decision has been made without the support of a substantial majority of members,” says Cornwall’s panel.
Cornwall Council is putting the major decision of its outsourcing deal with BT to the full council. A yes or no decision is expected in December.
But Barnet is going ahead with its major decision to award a large outsourcing contract to Capita without a vote of the full council, although dissent over the plans are widespread. An inner circle of councillors, the “Cabinet”, is expected to approve a deal with Capita 0n 6 December.
This is part of what Cornwall’s panel says on the importance of political stability to successful outsourcing deals:
“Throughout the investigatory work of the Panel the importance of political leadership has been consistently stressed.
“It has been regarded by most authorities as the single biggest activity to get right and failure of this function will at best lead to problems and at worst to failure of the partnership.
“The form of the leadership is in itself not important and both cross-party support and a stable base from one political party have both been effective…
BT in Cornwall and Capita in Barnet have made promises of large savings which, understandably, makes some councillors and officers want to sign large, long-term outsourcing deals.
If suppliers provide money upfront for transformation projects this eases, or even releases, the burden on councillors and officers to make big cuts.
But how will BT at Cornwall and Capita at Barnet pay for savings, and for new investment in changes, if they fail to attract new business?
This was among the findings of Cornwall’s investigating panel of councillors:
“Members of the SIP [Single Issue Panel] have supported the investigation of ways in which jobs in Cornwall Council could be retained by trading shared services.
“All other authorities that have started with a similar ambition have failed to deliver that aspiration. In one case the business model was substantially reliant on trading and growth and has been in place since 2006.
“No significant trading has taken place and this is a similar story in all other authorities that the SIP has been in contact with.”
This finding shows how the promises of suppliers to attract new business can prove over-optimistic; but at least all of Cornwall’s councillors will have a chance to vote on a deal. Barnet is not giving its full council the same opportunity.
If Barnet’s officers and ruling members read Cornwall’s Single Issue Panel report they will be aware of evidence that it can be corrosive and destructive for a council to make a major decision without the support of a substantial majority of members.
If Barnet’s inner circle then goes ahead with making a major decision in the face of widespread and strong dissent among some staff and councillors, could its decision amount of maladministration if the subsequent deal turns sour?
One concern is that the suppliers may put up money in advance and charge for this – with interest – in the latter part of the contract, as in discredited PFI deals.
Today’s councillors and officers would have money for investment in the early stages of the contract. But they may leave future generations of councillors and officers with a legacy of large payments. The full facts should be known before any deal is signed.
Another concern is that the suppliers may rely on major legislative and organisational change – both of which are inevitable – to provide much of their profit.
If a future council does not want to pay the suppliers’ invoices for changes a dispute may arise, for which the suppliers will be much better prepared than the councils.
A further concern is that the savings promised by suppliers may be smaller than the savings the councils could make on their own, with suppliers acting as consultants, for the costs of technology fall annually – as do some cloud services as competition increases. Again the facts should be known before any long-term deal with a single supplier signed.
It may also be important for officers at Cornwall and Barnet to be aware that Suffolk County Council has decided after its outsourcing deal with BT that it is better to outsource to multiple “expert” suppliers than a single one.
In Barnet the public needs to be able to hold those responsible for a major decision to account, if all goes wrong. The problem is that the individuals on any minority group that is responsible for a outsourcing decision today are unlikely to be in post when any dispute arises.