Good government will now cost less and the largesse of the last decade is over, proclaim the coalition government’s foot soldiers. Rodney Jack asks if outsourcing can provide local authorities with a financial incentive
July 2010
Government is clear: it wants transparency in working practices to drive out wasteful overheads, and greater analysis and sharing of purchasing. While the current administration may temper the rhetoric periodically, local authorities recognise they face five consecutive years of budget cuts, and calls to change culturally.
Authorities are already thinking creatively about how they make savings and improve their services. Prominent among the options is the outsourcing of sourcing – in other words using the wares of a specialist to help run e-auctions and negotiate contracts with suppliers.
An example comes from Durham University, which says an event that cost just a few thousand pounds to run generated annual savings in excess of £400,000 on its annual facilities management and uniform contract costs (56% and 28% annual cost reduction respectively).
eProcurement business Wax Digital helped build the specification, set the terms of engagement, ran a series of e-auction events and provided on-site support and training.
Such arrangements are deemed ‘highly successful’ yet they take time and effort to get right – and the process is also a learning curve as every organisation faces its own peculiar set of circumstances and goals.
Paul Layzell, head of sourcing at Wax Digital says: “Online auctions have taken some people out of their comfort zone, and they are not suitable for every purchasing decision, but when used properly, they can help you make significant savings on time and money.”
He urges conducting due diligence to ensure legal compliance with EU legislation, obtain the lowest sustainable prices, and a level playing field with clearly defined parameters for qualifications while investigating whether similar bodies can work together.
Ringing the changes
The third sector’s message of a more localised approach involving citizens in the changes within communities chimes with the government’s aims to have the public sector operate differently, and have delivery partners redesign services.
Frank Villeneuve-Smith, communications director at HCT Group, a social enterprise in the transport industry, says the key point of local authority outsourcing is not whether they outsource, but how.
“If local authorities are looking to make material, rather than incremental savings, then they need to fundamentally rethink their procurement processes, which often lock in unwieldy/expensive service design rather than unlock the innovation potential of their supply chains or their communities,” he argues.
He puts forward his ‘ideas’ for a debate on better procurement by saying a system of public services that sets goals based on outcomes (such as how to get young people with disabilities to school on time) rather than a widely adopted inputs and outputs method (a certain number of buses delivering a certain number of journeys along a given route) would have a major impact on the quality of services.
“Ninety per cent of the local authority contracts we see have innovation and cost savings designed out of them.,” says Villeneuve-Smith. “How can you bridge the gap between the role of central government and the passion of social enterprises?” Examples feature aplenty in the guide – ‘innovation in transport procurement’ to answer this question. One notable illustration is Middlesbrough Council’s saving 17% on a £1m contract.
In Middlesbrough’s case, the introduction of the social enterprise Ayresome Industries to take on all social services transport rather than the council meant not only financial savings but also the development of skills and the provision of jobs in light manufacturing, construction and other areas for people in the city.
Villeneuve-Smith cautions, however, that the outcomes must be agreed with citizens through meaningful engagement. “Only then can we be sure the outcomes we are striving for are the right ones,” he asserts.
Councils may be looking to save millions of pounds but there are the pros and cons of their options to weigh up. For companies looking for accountability throughout their whole supply-chain, outsourcing can be an extremely attractive proposition, says Stephen Bentley, CEO of Granby Marketing Services.
This is because it provides an optimum cost for doing the job; industry specialists to tap into; best practice of the outsourcing company; and, it allows the organisation that is outsourcing to concentrate on its core services.
Equally Ian Ellis, Executive Chairman of property outsourcing specialists Telereal Trillium trumpets outsourcing’s advantages based on work with Department for Work and Pensions (DWP) and the Driver and Vehicle Licensing Agency (DVLA). Telereal uses measures such as introducing modern office lay-outs and improved facilities to increase productivity.
In both instances, however, there is the extremely hard work of compiling the most accurate invitation to tender. “If you fail at that, you will fail all the way through,” Bentley says.
For potential outsource partners, Bentley adds, you need to know what you're buying, and you have to know exactly what you need: “The pitfalls of ambiguity on invitations to tender are the prime reason for partnerships failing and indeed, are the biggest complaint amongst the outsourcing community.”
He concludes: “When you make a commitment towards outsourcing you're naturally going to scale back certain in-house operations, therefore you do face the risk and costs of re-implementing these should it fail. That's why you have to be 100% sure that's outsourcing's for you and that you get it right first time."