Is local government ready to give up on outsourcing for New Year?

Profile picture for user slauchlan By Stuart Lauchlan January 4, 2016
Summary:
Outsource in haste, repent at leisure - or at least with a lengthy period of time spent in the law courts. Lessons for local government.

Town Hall - Conservative front page

Local government has been one of the last bastions of traditional outsourcing contracts, but recent developments would appear to suggest that scepticism is setting in.

As a case in point, Dorset County Council just turned its back on a proposal to outsource the running of its back office, in large part due to the perceived inflexibility of the traditional model.

The minutes of a Dorset County Council Cabinet meeting, held in December, reported a decision by councillors that:

an outsource of all of the support services, be rejected as this is unlikely to be sufficiently flexible in the future.

With the council looking for £45 million of savings over the next three years, that’s a bold decision, particularly as there is no firmed-up alternative option in place. Suggested ideas include shared services with other local authorities or focusing on improving the services delivered internally.

That latter option is the one flagged up by councillor Robin Cook, cabinet member for corporate development at Dorset County Council, who said:

In an ideal world, we’d look to keep all of this in-house.

Cornish crunch

The council might well be wary of outsourcing after observing the troubles at its neighbouring county Cornwall which has spent months breaking free of a £160 million outsourcing deal with BT.

Cornwall Council signed a ten year contract with BT in 2013, covering IT service delivery, document management, payroll, telehealth and telecare services.

Last year the council announced it wanted to terminate the contract, claiming that BT had been in material breach of the contract and had not carried out services “to the required contractual standards”.

This resulted in the supplier filing an injunction to try to prevent the customer from doing this. But after the case went to the High Court, the judge, Mr Justice Knowles, came down against BT, finding that it had:

faced problems of its own making and did not provide to the defendants the service it had promised, to the standard it had promised. The council worked with BT Cornwall to try to resolve things, but ultimately decided the position was not good enough.

A BT spokesperson said afterwards:

We are reviewing the judgement carefully and considering its implications.We will be meeting with the council at the earliest opportunity to discuss the full impact of the court’s decision on BT Cornwall.
With the public sector back at work this week, the council is now working with BT to transfer staff from BT Cornwall and back in-house. In the meantime BT will continue to provide services.

The Cornwall case is likely to become something of a benchmark decision in outsourcing circles. After being signed in 2013, the council later voted for a “smaller version” the following year, one that was intended to deliver cost savings of £17.6 million over ten years and create a minimum of 197 jobs.

But by April 2015 when the council published a Strategic Partnership Review, only 35 jobs out of the 111 scheduled to be created in the first two years had actually happened. The following month the council fined BT £100,000 for contract failures, before deciding to terminate the deal in June.

All told, it’s a perfect example of a bad deal. Mr Justice Knowles urged others to take heed of the mistakes that had been made:

It is very much to be hoped that all parties to the dispute will consider the position carefully, in the interests of the public, and take steps now to avoid a similar situation in the future, in Cornwall or elsewhere.

The mistakes included a statement of work agreement that was impractically long and imprecise in its wording, said Mr Justice Knowles:

It runs to several lever arch files without that length providing clarity in return. The imprecision in its drafting was well illustrated when things started going wrong.

This led to uncertainties and a backlog of work that involved:

critical business functions for the (council) where public safety and health might well be involved.

 

Southwest none

The Cornwall ruling came shortly after Somerset County Council decided to sack IBM-owned Southwest One, which has been running its IT, customer contact and a range of other back office services and had been due to continue to do so until November 2017.

Southwest One is a joint venture between IBM, Avon and Somerset Police, Taunton Deane Council and Somerset County Council, set up in 2007 to deliver a range of support services to the local authority partners. The council pays £14 million a year to Southwest One for the services it currently delivers to the authority, which at one time was seen as economically the most efficient approach.

But times have changed, according to Council Leader John Osman and yet again it is the lack of flexibility of traditional outsourcing models and contracts that is being blamed:

We are a smaller organisation that has made big changes to the way it works. The fixed price nature of the contract has prevented us from making some of the savings that should come with those changes. More change is on the horizon and the pressure to make efficiencies and savings has never been higher. We need more flexibility than this contract allows and leaving early allows us to start making changes and savings sooner.

Those savings were predicted to be £180 million over 10 years, and while no statement has been made by the council on what savings have been made they are expected to be only a fraction of this amount.

Southwest One lack of flexibility to changing circumstances has led to commentators speculating that the intended £180 million savings over ten years promised by the contract will have fallen well short of expectations. The BBC reported that the deal has in fact lost a net £50 million over eight years.

The longer term impact of such failures remains to be seen. For the National Outsourcing Association, chair Kerry Hallard told the media in the wake of the Cornwall ruling:

As the industry association promoting best practice in outsourcing, it's always very disappointing to see examples of outsourcing failing, and failing so spectacularly. Little solace for those negatively impacted, but such examples are still few and far between - sadly the successes don't make it into headlines in quite the same way as the failures.

Back in May last year, local government was one of the growth markets in an otherwise downbeat UK outsourcing market. According to May’s UK Outsourcing Index from arvato and research firm Nelson Hall, lthe average contract length of local government deals increased by 70% from 58 months to 99 months year-on-year, indicative of local government’s:

belief in outsourcing as a proven strategy for tackling the sector’s challenges.

That's an increasingly challenged belief.

My take

Outsource in haste, repent at leisure - or at least with a lengthy period of time spent in the law courts.

And yet local government’s addiction to traditional outsourcing has gone largely unfettered, even as central government’s shift to a Cloud First model with shorter and more flexible contracts gains traction.

Cloud resistance, with some honourable exceptions, remains the norm. A November study by Unit4 found that of over 1000 senior Town Hall staff, more than a third (34%) don’t know what G-Cloud is, while only 3% said that they had made use of the program.

Maybe 2016 will be the year when local government finally starts to shake off its outsourcing fetish?

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