Outsourcing – buyer beware?

Here is an interesting item on the potential pitfalls of outsourcing.  Although it refers to the information technology systems (most people think of this as ‘the computers’) it could easily be applied to all other areas where outsourcing is being looked at as option.  I found the statement about contract negotiation particularly noteworthy, as this is where every level of government, not just small local authorities, seem to be found lacking to say the least – put crudely, they all too often seem to get stitched up by the private sector!

“Outsourcing is good and delivers economies of scale however the process is a major commitment and a path filled with risks, according to a latest briefing from Scotim Insight.

The “Costs of Outsourcing – uncovering the real risks” presents a detailed analysis of the outsourcing process and the risks it brings to local authorities.

According to the document, the risks begin at the tender stage. The supplier is well versed in contract negotiations on outsourcing while a smaller local authority is rarely going to be in that position.  So, the briefing suggests that councils seek professional advice around framing and negotiating a contract.

It also urges councils not to put all their eggs in one basket. Rather than transferring all ICT operations as a bundle to one supplier, it is best to break them into components and go to market individually.

often as a result of outsourcing, in house talen is lost which leaves the organisation unempowered against a well versed supplier.  It is equivalent to the naïve householder faced with a plumber who takes a sharp intake of breath, asks ‘Who did this?’ and then presents a large bill. In these circumstances, urgent jobs may be done only at an excessive margin, as the supplier seeks to recoup profits lost through the typically hard-fought and costly competitive tender process.

Socitm Insight suggests that identifying the potential savings to be expected from an outsourcing deal by benchmarking in advance the cost and satisfaction with the existing service against the best performing ICT services and writing the difference into the specification could be a good starting point.

‘Outsourcing should not be considered an inevitable response to austerity’ says Martin Greenwood, author of Cost of outsourcing. ‘Even smaller organisations that need to gain economies of scale, and struggle to keep up to date with technological development, should consider collaboration and sharing with other local public services as a genuine alternative. If they do take the plunge into outsourcing, they should make sure they are aware of the pitfalls and know how to avoid them.’ ”

Source: eGov monitor – A Policy Dialogue Platform
Published Wednesday, 4 May, 2011 – 10:02

One thought on “Outsourcing – buyer beware?

  1. It’s a good point. Another problem with outsourcing is around innovating and efficiency savings.

    After a service is outsourced, the only people who will benefit from improved efficiency are the outsourcers! So a service could be costing an authority a lot more than it actually costs to deliver.

    The reverse is also true, in that I have heard of several examples of local authorities unable to outsource a service because they had already ironed out the low hanging inefficiency fruit. No margains for the outsourcers, so they weren’t interested!


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