Pay now or pay later

I read today that Suffolk County Council is on the cusp of making a decision that will see it outsource almost all of its services. I have mixed feelings about this.

One the one hand, it is a project full of interesting challenges. If I remember when I was a finance director I can imagine the sorts of issues that I would be thinking about if the council I worked for had a similar plan. There are simply loads of challenges connected with getting the outsourcing strategy right. It sounds simple to say we are going to outsource everything but the council needs to think about how it will package services. It is important that each contract is as independent from all the others as possible because whenever one contractor depends on another contractor (who is not a sub-contractor) to perform something there is risk to the client (ie the Council) of problems. The more contracts  and the more inter-related they are the more problems are likely to occur.

On the face of it there is not much interdependence between a highways service and libraries but there are at least two issues. The services are not dependent on each other but what if the council wants to have a single website with its contractors maintaining information about the services they each provide. This would require the council to provide (either directly or through an ICT contract) a standard website which the other contractors can access and update. These services immediately become dependent on the in-house ICT team or the ICT contractor, as the case may be. Similar issues could occur if the council wants to use one-stop shops and/or contact centres where the public can access all council services. The alternative to this would be to require every contractor to have its own arrangements for public access which would be a return to the old departmentalism and, likely as not, more expensive because of the duplication.

The second packaging problem is that if the council awards contracts for whole services on a county-wide basis it will minimize the interdependence between contracts but will prevent small community-based organizations from being involved. To go for smaller contracts solves that problem but adds costs because economies of scale are lost, both for the contractors and for the council's contract management team.

The Council also needs to decide how long each contract will be for. If lots of contracts are awarded in 2011 and 2012 in order to achieve the goal it would not want to have to re-tender them all together in 7 or 10 years' time. It would be better to have different contract lengths so that the workload of re-tendering is spread out.

As I said, I have mixed feeling about this proposal. If I were in Suffolk I would be interested and excited about addressing the challenges above. My concern, borne of experience, is that even after 30 years of contracting out services councils do not have enough commercial, financial and legal skills to do the work. However many staff Suffolk has who work in procurement and contract management, and however great they are at their job, there will not be enough to take on the task that faces them if the council approve the plans tomorrow. The consequence of spreading your resources too thin is that the contracts that are awarded are not good enough and the council and citizens will have to live with their shortcomings for a decade or more. The outsourcing project needs to be populated with commercially-aware managers who have experience of outsourcing, not with staff seconded from each service who have never seen a contract before. This, inevitably will cost a lot of money in the short term. Will the council be willing to meet the cost of getting it right or pay the price in the long term for getting it wrong?