Why have councils fallen out of love with outsourcing vital services?

Storm Desmond decimated historic Pooley Bridge, over river Eamont at the northern end of Ullswater, in December, when more than a trillion litres of rain in the north-west flooded more than 7,000 properties and closed down three major highways in the Lake District. Officials in Cumbria say one unlikely factor proved crucial in the flood recovery that followed: the council’s decision a few years earlier to bring its outsourced major highway and housing services back in-house.

What-helps-an-outsourcing-partnership-Be-up-front-about-the-bad-news.jpgAcross England, many local authorities have outsourced billions of pounds worth of services to private companies in a bid to save money and improve efficiency. But some of the earliest councils to do so have found that the approach had the opposite effect. Costs went up, and complications ensued. In Cumbria, the Conservative leader Eddie Martin bucked the party line in 2011 and brought nearly all outsourced services back in-house when its 10-year contracts withCapita came to an end, and the following year when a seven-year roadworks contract with Amey finished. Since then, the council has balanced its budget and boosted its response time to crises.

A Guardian investigation of the 36 strategic public-private partnerships (PPPs) that local authorities signed between 2000 and 2007 has found that 13 of the contracts – which ranged from seven to 15 years and covered IT, back-office functions, property management and highways – have since gone back in-house, either at the end of contract or as a result of early terminations. That means that in more than a third (36%) of cases, councils found that delivering services in-house could save more than outsourcing to commercial companies in long-term, multi-service partnerships.
From the outset, Cumbria came face to face with the rigidity in its private contracts. The council committed to one of the first major public-private partnerships for highways and building management in 2001, and it outsourced a host of services from roadworks to IT in the subsequent years. In the first year of its highways contract with Capita, foot and mouth disease broke out across the county. Cumbria’s then Labour council leader Stewart Young watched the negotiations around add-on services jack up the cost, which was initially about £20m a year for standard work.

Instead of the cost-efficiencies hoped for, Cumbria’s councillors say they tussled with contractors and lacked the bargaining power to keep prices down. They say that the private companies could name the price for any additional out-of-contract services that arose. When the contracts for highways and roadworks went up for renewal between 2011 and 2012, the Conservative council leader Eddie Martin fought off political pressure and brought all highways and road operations back in house.

“I was leading a very committed group of Conservatives and it was somewhat anathema to think about insourcing,” says Martin. “The government says that outsourcing is everything, but while it might get you an initial cheaper price, that price simply doesn’t last, you lose flexibility, and it causes a great deal of unrest.” Now, Cumbria estimates it saves £1.8m each year on highway and road services. And when disaster strikes, like the recent floods, it says it can deploy staff in a heartbeat.

On site at Pooley Bridge, following its collapse, Cumbria’s highway network manager David Spence says the Desmond recovery is far more nimble than disaster responses he managed under the former highways contractor. When rainwater overtook the streets and swelled up the hillsides this time, Spence’s staff didn’t need to negotiate on out-of-contract work. Instead, they rushed to take on emergency response roles as part of their remit. They cleared the roads of trees, sandbagged homes, and helped remove the dead sheep lodged in the brush.

public-private-partnerships-ppp-and-affordable-housing-by-david-hoicka-13-728Council outsourcing in Britain began life under the Thatcher government in the 1980s as compulsory competitive tendering. New Labour came on board in the early 2000s, pushing the creation of markets in public services and developed strategic public-private partnerships. What was once a Conservative rallying cry grew into a mainstream ideology that has cut across party lines. As councils desperately tried to cut costs between 2008 and 2013, the total number of new strategic public-private partnerships increased by 85%, according to research by the European Services Strategy Unit (ESSU), which is one of the primary organisations that analyses major public-private partnership contracts at the local government level.p3-partnership.gif

But new research due to be published later this year by the ESSU, has found that in the last 15 years, more than a quarter (28%) have failed – measured by contract terminations, major reductions in scope, and significant operational problems.

Dexter Whitfield, the director of the ESSU, says: “Councils have spent £14.2bn on 65 strategic public-private partnership contracts, but there is scant evidence of full costs and savings”.

According to Whitfield, this is due to “the lack of transparent financial audits of contracts, secretive joint council-contractor governance arrangements, poor monitoring, undisclosed procurement costs, a lack of rigorous scrutiny and political fear of admitting failure”.outsource.en

David Simmonds, chair of the Local Government Association’s improvement and innovation board, adds: “Many councils have discovered that contracts they may have signed with a view of saving money no longer represent good value for money,” he says. “You have to appraise that and say, well, can we do it better ourselves?”

Councils from Essex, in the south east, to Sefton in Merseyside have ended major contracts because of poor performance, while Somerset county council announced an early end to a joint venture for back office functions with IBM in 2015 when savings looked to reach less than a third of the initial £192m target.contract465

When BT refused to accommodate Liverpool council’s budget cuts, the council discovered that bringing its IT services back in-house from the telecoms giant after a 10-year contract ended in 2014 would save £30m over three years. So insource it did. “PPPs aren’t always as good as they seem,” says Liverpool’s Labour mayor Joe Anderson. “And now, rather than money going to private sector shareholders, those savings and efficiencies can come back down into the city council.”

In north London, Richard Watts wanted to insource services when he became Labour leader of Islington council three years ago because he believed it was the right thing to do. But when he took a look at the books, he saw it would save £3.8m each year on housing and £3m a year on waste, street cleaning and grounds services. “Millions and millions a year,” says Watts. “These are big sums.”

In the case of housing, Islington realised it was duplicating major costs by working with a private company. It was paying one set of executives, lawyers, and accountants in the private organisation, and one set in the council to manage the contract.

“Everyone had accepted this ‘private good, public bad’ mantra that was going around,” says Watts. “I don’t think any of us running the council realised the amount of money we could save by doing this.”





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