Public sector outsourcing

Outsourced contracts worth up to £500m each have just been put out to tender by the Home Office for the government's identity card scheme. Five firms will be
chosen to supply computer equipment and manage the application and issuing of ID cards. Government officials have said that it is an “important milestone” in delivering the £2bn scheme, which will see ID cards issued to UK residents in 2009.
The deals range from £50m per year, while two are expected to be worth up to £500m per year, making them among the most expensive contracts ever awarded by the UK government.  The contracts will run for up to 10 years and a high level of interest is expected from companies across the world, including IT services giants, such as EDS, IBM, TCS, Accenture, HP, BT, Capgemini and Fujitsu Services.
Officials would reserve the option to change the length of the contracts, with an option to terminate the contract within 1 year if the company doesn’t perform, but they would nominally be for a period of up to 10 years.  The first contracts are expected to be let in nine months, although firms that expressed their interest in bidding were invited to a conference at the Home Office in September.

Achieving targets - at what cost?
Clearly outsourcing this service makes sense to achieve the Home Office’s implementation targets. However, whether the contacts can actually be let in time for a ‘ready for service’ date of October 2009 is doubtful. Trying to force a timescale onto contract negotiations can be a double-edged sword. It can result in customers awarding a contract before all the negotiations, such as due diligence, are settled.  This is a similar situation to the ‘forced’ award of contracts for the NHS – which has had negative repercussions for the Home Office, suppliers and ultimately the general public, who have to pay for it.
Questions remain as to whether termination within a year is a sensible precaution. Would it be possible for a Government department, abiding by EU procurement rules, to actually procure a replacement service within a year?  Perhaps it would make sense for the Home Office to consider having two suppliers for
50 per cent of each service. In this situation, if one fails to perform the task to a suitable standard, the other can take over some of the services. At least this would create competition throughout the service delivery period.

Areas to consider
There are certain recommendations that the NOA would suggest for public sector outsourcing:

Use what’s there: Make sure that Office of Government Commerce (OGC) gateway reviews are absolutely followed - have at least one if not more, independent external (non-government) advisors on the Programme Board. These advisors should be engaged at least for the life of the development, implementation and some operation phases, with a background in IT outsourcing.

Adopt the Charter approach to
Multi-sourcing: Build the complete programme on the basis of multi-sourcing and deploy a “Charter” between the supplying organisations so that they are mutually dependent, in terms of service, remuneration and their benefits.

Contract Negotiations: Once you have a supplier, or suppliers, the next step is contract negotiation - sitting at the table and hammering out the ground rules. Again, this is an area where many outsourcing partnerships fall flat. Unrealistic goal setting can be a problem, from businesses or a government that want to get the most from their money and suppliers who are too eager to please. But if unrealistic SLAs are set and the suppliers can’t meet them, this can cause bad feeling and could spell the end of the relationship – a waste of time and money. Contractual points have to be clear, concise and adhered to. Periodic revision of the contract and how all parties feel about it can help build a harmonious relationship. Similarly make sure that the contract provides for independent third party benchmarking of the end-users against which you can measure suppliers’ performance.

Clear Communication: This is paramount. Whether this is careful communication of objectives to everyone involved, to regular meetings between your business and the various suppliers, regular communication is vital to the success of outsourcing. Details on the level and type of communication should be incorporated into the contract. It is also important to have one person at your business responsible for managing the relationship – if there are too many people directly involved, responsibilities become blurred, which can have an effect on the efficiency of the operation. Clear lines of communication and good account management are pivotal factors in successful outsourcing.

Transparency of operations and costs: Another vital part of the outsourcing deal. Secrecy, back biting and unfeasibly large bills cause bad feeling and can be the downfall of your outsourcing relationship. If everyone knows what everyone else is doing, is upfront about any niggles and is prepared to give cost and activity breakdowns for invoices, this smoothes the path for a better relationship.
Whether the public, politicians, commercial and public organisations like it or not, it is undisputed that outsourcing, and offshoring, is here to stay. But in order to make the most of it and limit damage of any sort, it has to be managed in the best way possible.
The NOA is the UK’s independent outsourcing organisation, which supports organisations outsourcing and develops best outsourcing practice.

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