Public sector outsourcing: What have we learnt and what is still unclear?

From the early 1980s onwards public sector outsourcing – the delivery of public services by private sector organisations – has become increasingly common place in the UK and internationally. While the language may have changed along the way, with Compulsory Competitive Tendering giving way to Public Private Partnerships, the underlying intention has remained consistent: to harness the power of competition in order to improve the efficiency, responsiveness and quality of public services. These aims have been reinforced by successive governments.

Since outsourcing is now so well-established, what can be learnt from this long-standing experience?

First, the impact of outsourced arrangements in terms of efficiency, quality and value for money seems to be mixed, but is also quite hard to assess. As the Institute for Government notes, one reason for this difficulty is the lack of transparency about both the terms on which contracts are let and how they perform. While there have been several high-profile failures, such as those involving Serco and G4S, it is hard to gauge how representative these are of outsourcing experience in general. It is certainly interesting to note though, that in some quarters there seems to have been a turning of the tide, with some recent examples of previously outsourced services being brought back in-house. In 2011, for example, the Conservative-led council in Cumbria decided to bring its contracted-out highways and road-works services in-house, citing rising prices and lack of flexibility, with similar decisions since being made in some other local authorities. These shifts indicate that, at the very least, the evidence about impact doesn’t all point one way.

Secondly, there is no shortage of incisive analysis pointing out the lessons that have been learnt within the public sector about the conditions for success. Reports by the National Audit Office (NAO) in 2012 and by the Institute for Government and the Public Accounts Committee in 2013 and 2014 respectively, all looked in depth at the problems and challenges of public sector outsourcing. The recommendations by these reports can be grouped, broadly, into a three-part agenda, dealing with:

• Oversight arrangements. This includes having clear rules in place to govern market-based arrangements, having a clear understanding of each particular market and, crucially, knowing whose job it is to perform these oversight functions – a point made in the Institute for Government’s report on ‘Making Public Service Markets Work’. The need for transparency also fits in here.
• Making markets work effectively. This heading sub-divides further into demand- and supply-side measures, aimed respectively at empowering users and at enabling entry to and exit from the market.
• Contract management and delivery. Here the emphasis is on contractors having the skills to design, manage and monitor contracts. As the Public Accounts Committee commented: “government needs a far more professional and skilled approach to managing contracts”, warning that “there are serious weaknesses in the Government’s ability to negotiate and manage contracts with private companies on our behalf.” Continuing concerns about weaknesses in this area are signalled by the recent announcement of a Cabinet Office review of £500m worth of outsourcing contracts held by Atos, following a major failure in their work on an IT contract for GPs.

There seems to be, then, a clear consensus about current problems in public sector outsourcing and how they need to be addressed.

The third point to note concerning the current state of play, though, concerns the criteria that are being used to assess the outcomes of public sector outsourcing. Almost across the board, the start and end point is that of ‘value for money’. This emphasis is echoed in, for example, the title of the NAO’s report on ‘Delivering public services through markets: principles for achieving value for money’. This is not surprising, given that value for money has been at the heart of the rhetoric that drives these arrangements.

It does lead, though, to some questions and dilemmas. Value for money has to be interpreted, and this involves deciding on the appropriate trade-offs between efficiency, economy and quality. In this complex process of decision-making, it is all too easy for the interpretation to focus solely on costs at the expense of a clear-headed view about how those costs relate to the outcomes achieved. An emphasis on value for money can also lead to a market-centric perspective in which the analysis of both the process and outcomes of outsourcing tends to focus on the workings of a particular sector or market rather than on the wider implications. This emphasis can be seen in the three-part agenda set out above.

These wider implications are important for the users of public services. As the Institute for Government points out, service users may have multiple needs and yet each commissioner will tend to focus on just one narrow part of these needs. There are also wider implications for providers. What happens to the strategic capacity of a local authority when it has outsourced its services to such a degree that it no longer has the capacity to take a strategic view about the future shape and pattern of services? What happens to organisational learning – both about the process of contracting-out and the outcomes achieved – when that strategic capacity degrades? What impact does this then have on public sector managers’ capacity to take the professional and skilled approach that the Public Accounts Committee has called for?

These questions about the impact of outsourcing on strategic capacity and organisational learning urgently need adding to the agenda identified above.

Ellen Roberts – follow me on Twitter

Four frameworks to understand public service reform – a proposal

Public services tend to be seen as guarantors of well-being. Whether we think of education, healthcare or essential local services, it is generally agreed that public services, funded by taxation and available to people regardless of their ability to directly pay, play a role in protecting certain minimum standards. As soon as we move however beyond these basic assumptions, debates around public services become more antagonistic, with competing arguments regarding the most efficient use of public funds, the most effective modes of delivery and the main priorities of service provision. It is thus not surprising that reform plans for public services are subject to controversial and often contradictory claims as to what should be done, can be done and why.

It is one of the tasks of social scientists to reveal what lies behind such arguments and to hence analyse the material and ideological drivers behind social transformations or policy change. To do this well, it makes sense to rely on an effective combination of empirical research and theorising, with the latter being essential to reduce the complexity of social reality and to create frameworks, models and categories that help to foster a critical understanding of the social world surrounding us.

Based on empirical research of public service reforms and having taught this topic for several years, I would argue that we can identify four distinct ideational frameworks, which represent a coherent set of beliefs guiding public service reform. In this blog post, I would like to briefly introduce these four and invite any comments, either publicly or via email:

The social-holistic framework sees public services as deeply interwoven with the integrative fabric of a society, as institutions that tie social groups, individuals and communities together by establishing bonds of collectively organised mutual support and interdependence. The importance of public services goes beyond the practical, as they represent one major expression of how a society chooses to be organised along the lines of democratic inclusiveness as well as inter-generational and inter-personal solidarity. Public services are, from this perspective and in the words of Castel and Haroche (2001), a form of social property accessible to all citizens and residents.

The political-selective framework is equally embedded in material social relations, but it is less universal and comprehensive than the previous framework, as it focuses on the conflictual interplays between social groups. The shape and generosity of public services as well as the priorities of service delivery are determined by the ability of social groups and classes to influence the policy process and to make demands for service provision.

The economic-functionalist framework defines public services negatively, as a response to perceived gaps and distortions in the functioning of markets. Wherever market failures occur, a space for legitimate government intervention opens up to address said market failures, but the scope of public services remains generally restricted to those realms where market-based approaches, according to the theoretical premises of this perspective, appear as insufficient.

The moral-residual framework takes this thinking further, by stipulating that public services ought to provide nothing more than a minimum safety net for the poorest members of society, in other words for those who do not possess the economic or social capital to protect themselves, for example by purchasing private education or health insurance. It could be argued that this framework represents a sub-set of the economic-functionalist framework, if it weren’t for one substantial difference: Similar to means-tested benefits, users of these residual public services can potentially be subjected to a moralising discourse that defines any reliance on the minimum safety net as a sign of personal failure.

These four frameworks obviously need to be fine-tuned by further empirical research in order to create proper ideal-types, but I think they can serve well as a starting point for analyses that seek to identify how advocates of public service reform, be it political parties, think tanks or NGOs, conceptualise and act upon public services.

In this way, we can gain a deeper understanding of the underpinning ideas and interests that drive policy change in this particular field. Moreover, it becomes easier to identify broader trends in public service reform and to situate specific case studies within these trends, going beyond categories such as ‘choice and competition’ that are frequently used by observers and policy-makers to describe reform processes. And finally, frameworks like these, or adjusted versions of them, should enable us to shine a brighter spotlight on the intellectual premises that underpin debates about public services. It seems to me this critical engagement is crucial in times when the neoliberal and managerial paradigms of the past, despite their obvious flaws and failures, continue to restrict policy debates.

Enrico Reuter - follow me on Twitter

Castel, R. and Haroche, C. (2001). Propriété privée, propriété sociale, propriété de soi. Paris: Librairie Artème Fayard.

Managing public sector projects: What determines success or failure?

Over the last few years there have been several initiatives in the UK and elsewhere aimed at building the project management capacity of the public sector. In the UK, the Major Projects Authority was established in 2011 to provide independent assurance to government about the progress being made on governmental projects, and to support the development of a skilled cadre of governmental project leaders. This was followed by the establishment of a Major Projects Leadership Academy to develop leadership capability and build technical and commercial know-how. The latest version of the Civil Service Capabilities Plan (the 2014 ‘Annual Refresh’) confirms that ‘delivering successful projects and programmes’ is one of four key priorities for skills development in central government.

The backdrop to these initiatives is a well-established rhetoric concerning the likelihood of failure in public sector projects. The strength of this rhetoric can be accounted for partly by the greater public scrutiny to which governmental projects are subject and thus the high-profile nature of ‘failure’ when it occurs, and partly by a tendency in some circles to view public sector management as somehow inherently lacking.

Despite the possibly heightened tendency to look for and find failure in public sector projects, it is nevertheless valid to ask why projects fail, whether in the public or private sectors, and what could be done to increase the chances of success. This is an especially relevant question in the current climate of austerity, with extreme pressure being brought to bear on public spending and on achieving the maximum ‘value’ from resources.

How, then, to increase the likelihood that projects, whether in the public or private sector, will be successful?

The usual starting point, in answering this question, is to underline the importance of leadership, of technical and managerial skills, and of ensuring that projects are soundly based on established methodologies. This latter point can be seen in the Civil Service Capabilities Plan, which emphasises the importance of ‘drawing on project management disciplines and methodologies to achieve predictable, consistent, robust results’ so that the Government’s priorities can be delivered ‘right first time’. This emphasis on applying established methodology reflects the nature of the professional discipline of project management, which emphasises a rational, technocratic and managerial approach in which an established ‘Body of Knowledge’, representing established good practice and applicable to any project, is to be consistently applied.

This technical approach to project management, founded on a linear process for initiating, planning, executing and closing a project, provides a valuable foundation for building project success, but it only takes us so far in understanding why projects go off the rails.

A wider perspective, and some important clues about project failure, are offered by a recent study (Haji-Kazemi et al 2015) which focuses on understanding what happens when early warning signs about a project’s progress are identified. Such signs, whatever source they rise from, should be important triggers that feed into project scrutiny and, if necessary, into corrective action which in turn should help to increase the chances of project success. In practice, however, early warning signs are frequently neglected or misinterpreted. The reasons for this, as Haji-Kazemi et al discuss, are variously organisational, psychological and political. 

Organisationally, choices have to be made about what kind of project information to monitor. Decisions made at this stage can crucially affect what information gets through. Psychological factors include a well-established tendency in project management towards ‘optimism’ bias (Flyvbjerg 2009), defined as a tendency to be overly positive about the outcomes that are likely to arise from planned actions. This creates an inherent bias towards over-estimating benefits and under-estimating time, cost and risk. A further psychological tendency that can contribute to a neglect of warning signs is a tendency towards ‘normalisation of deviancy’ as problems become familiar and so begin to be accepted as part of the norm, creating ‘a perfect petri dish environment for corporate (or project) misbehaviour’ (Pinto 2013: 377). Political factors, reflected in the role that power plays, affect what type of information is allowed to influence decision-making. Taken together, these organisational, psychological and political factors can have a considerable influence on the extent to which early warning signs are detected and acted on, and thus on project success. Significantly, Haji-Kazemi et al identify that the likelihood of these factors causing distortions increases as project complexity grows. Although their work was focused on the private sector, this is a highly relevant finding for the public sector project manager, as public service projects tend to be characterised by multiple objectives and multiple stakeholders – both of which go hand in hand with a large dose of complexity.

What does this information mean, then, for project management and for governmental projects in particular?

First, there is nothing in these findings that detracts from the importance for project success of managerial capacity, technical know-how and skilled leadership. All these components of sound project management need to be brought to bear on ensuring that the barriers to recognising and acting on early warning signs are minimised. We also need to recognise, though, the importance and significance of the organisational, psychological and political factors that play into project management. While project management disciplines and methodologies provide a foundation for identifying early warning signs, they do not of themselves guarantee that these signs will be acted on. Studies by Haji-Kazemi, Pinto and others indicate that the key components in this respect go much wider than the project manager or leader, and include the nature of the organisation’s culture (especially an openness to discussion and a willingness to learn), the use of external scrutiny to provide for objective assessment that is freed from internal bias, and an approach to governance that encourages and rewards reflection and transparency.

These findings about why early warning signs may be neglected suggest that organisations need to frame the ‘problem’ of project management failure more broadly. While accepting that project management skills and capacity are part of the answer to this problem, organisations also need to understand the deeper roots of project failure, and to develop their corporate capacity for openness, learning, external scrutiny and effective governance. Otherwise, no amount of training for project managers and leaders will increase the chances of project success.

Ellen Roberts

Flyvbjerg, B., Garbuio, M. and Lovallo, D. (2009). Delusion and deception in large infrastructure projects: two models for explaining and preventing executive disaster, California Management Review, Vol 51 (2), pp. 170–193.

Haji-Kazemi, S., Andersen, B. and Klakegg, O. J. (2015). Barriers against effective responses to early warning signs in projects, International Journal of Project Management, Vol 33 (5), pp. 1068-1083.

Pinto, J.K. (2013). Project management, governance and the normalisation of deviancy, International Journal of Project Management, Vol 32 (3), pp. 376-387.

Why can’t government IT systems be more like supermarkets?

Despite the rapid diffusion of ICTs and the internet generally and the increasing

use of networked systems in the public sector known as eGovernment, the failure of some of these systems continues to dominate the news in the sector. Last year in the UK, the British government axed a new e-borders system, with a cost to the taxpayer of £224m. But that was small change compared to the abandoned National Health Service (NHS) patients’ record system, which in 2013 lost nearly £10 billion.

The UK government’s current IT-based benefit flagship, Universal Credit, has been beset with enough problems to keep those of us who keep a critical eye on these things tutting into our coffee for years to come and although not all the problems there are IT-related, the other problems identified by the National Audit Office (2014), including poor management and a ‘bunker mentality’, have meant that the whole project has had to be ‘reset’, which means the design and implementation of the IT system has been significantly overhauled – and you can imagine the bill for that.

So is the failure of these ambitious projects inevitable? Some studies show that the rate of total or partial failure of eGovernment systems in some economies is as high as 85% (Heeks, 2006). These failures are costly in the obvious economic sense but equally costly in terms of citizen’s trust in their governments’ ability to implement the kinds of systems that the private sector seems to have no problem with (‘if supermarkets can do it, why can’t the NHS?’ etc etc).

So what’s the problem? Why are eGovernment projects abandoned with eye-popping write-off costs with such regularity? And does anything actually go well, despite the headlines? The answer to that is of course, but success rarely makes good news copy. There are many examples of eGovernment systems in place that offer a number of benefits for citizens and governments alike. Simple examples such as the ability to apply for licences and permits or pay taxes and fees online in general work well and save citizens and agencies time and money. Efficiency gains such as removing the need to attend government offices during office hours means that citizens can navigate some forms of bureaucracy more conveniently and, in some cases, removing human interaction can even reduce mid and low-level corruption.

One could argue that these transaction-based systems compare well to private sector systems such as online shops and financial services which enjoy relatively high acceptance (take-up) rates amongst consumers; some studies show that between 50-66% of people with access to the web use it for some kind of financial transaction (Horrigan, 2008, Ofcom, 2011), with electronic cash transfers in some countries enjoying parallel success: For example, 65% of households in Kenya use a mobile phone-based cash transfer system (Jack and Suri, 2011), a pattern that is seeing similar success in other sub-Saharan countries.

But the problems occur with systems that are designed to process and manage a more complex range of variables, systems which often have to retrieve this data from existing ‘legacy’ (old) systems and which, by their very nature, require new ways of thinking about and working with this data. Business processes that worked fine on a range of unconnected electronic and paper-based systems may need to be re-engineered to fit the new world and this then becomes a project that is as much about people as it is about technology. Re-engineering these systems often means navigating complex and ever-changing hierarchies and stakeholder groups. Add to that the political drivers to outsource the work and push for an urgent roll out and you can see the iceberg ahead.

Technology is only a part of a ‘complex adaptive system’ that includes people, processes, politics and all the usual complexities of organised human life and understanding that seems to be the key to understanding eGovernment ‘success’. Only the very naïve (or pathologically optimistic neo-liberal) would suggest that government IT systems are comparable to supermarkets but I can’t help wondering why, when there is so much research in this area now, governments continue to make the same mistakes. The National Audit Office (2014) notes that the ‘reset’ Universal Credit project will be rolled out with a less ambitious timetable, with stable leadership, with more control of suppliers and with an incremental ‘test and learn’ approach to the process. I do wonder though if political ambition might thwart this promise. I will be watching with interest, coffee in hand.

Heeks, R, (2006) Implementing and Managing eGovernment: an International Text, London, Sage.

Horrigan, J, (2008) ‘Online shopping, Pew Internet and American Life Project Report’, available http://www.goldminenetwork.com/_did_you_know_online_shopping.pdf,  accessed 1st September 2015.

Jack, W and Suir, T (2011) ‘Mobile money: The economics of M-PESA’, NBER working paper No. 16721, available http://www.nber.org/papers/w16721, accessed 9th April 2015.

NAO, (2014) ‘Universal credit: progress update’, available at http://www.nao.org.uk/wp-content/uploads/2014/11/Universal-Credit-progress-update.pdf, accessed 1st September 2015.

Ofcom (2011) ‘Internet use and attitudes’, http://stakeholders.ofcom.org.uk/binaries/research/media-literacy/media-lit11/internet_use _2011.pdf, accessed 1st September 2015.

Jane Lund teaches on the online Masters programmes in Public Policy and Management in the Department of Social Policy and Social Work at the University of York. She has a keen interest in eGovernment and eLearning.