How outsourcing goes wrong

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A new hard-hitting book has lambasted the “disastrous” practice of UK government outsourcing, calling for sweeping reform and drastic curbs in sectors like local government.

What a Waste: Outsourcing and how it goes wrong, written by researchers from the Centre for Research on Socio-Cultural Change (CRESC) at Alliance MBS, probes the outsourcing revolution in the British economy driven by the increasing contracting out of public services to private business interests.

Professor Karel Williams from CRESC said the book does more than focus on well-publicised fiascos. “We show that behind these scandals lie new networks of power and privilege, and a new way of governing the economy. Giant corporate enterprises central to outsourcing are now in effect governing institutions exercising great power and carrying out key public functions without the inconvenience of acknowledging public responsibility and accountability.”

The book lays out four key charges against the government outsourcing revolution:

*Promotes blame shifting by government because when things go wrong, it is easy to blame outsourcing contractors or individual public servants who wrote the contract

*Contracts typically cover mundane activities which too often allow profit taking at the expense of taxpayer and the workforce by outsourcers who do not make capital investment or take market risk

*Has created giant conglomerates which are largely unstable bidding machines driven by the hunt for fresh contracts and acquisition, not the pursuit of efficient service delivery

*Is a sector dominated by ‘financialised’ practices and the manipulation of tax and company law to maximise private gains at social expense

The arguments are backed up with detailed case studies of the financials which illuminate some of the paradoxes about outsourcing. Analysis of outsourcing contracts shows solid margins and extraordinary returns on capital at the contract level but at company level, when contracts are consolidated, returns are mundane.

Prof. Williams is highly critical of the giant outsourcing conglomerates which combine unrelated activities. “Outsourcing conglomerates are crisis-prone because their business models are based on a strategy of growth through acquisitions involving a kind of corporate roulette, opacity in financial reporting and a headlong pursuit of contracts without any care to ensure that the firms have the expertise to deliver the contracted services,” he adds.

The authors are equally trenchant about the possibility of reform through new policies, arguing that citizens do not have to accept this “disastrous state of affairs”. The proposal is that government outsourcing should be curbed by politically agreed prohibitions on outsourcing which is not in the public interest.

Prof. Williams argues for some ‘simple’ principles such as:

  • no large scale outsourcing in local government where officers and members do not have the expertise to negotiate contracts
  • no outsourcing of politically toxic services like border controls because government should take responsibility for what it does
  • no total outsourcing of any important service like the provision of care homes because the public sector needs its own expertise

The book, published by Manchester University Press, will have its London launch at Senate House, University of London, on Wednesday 21st October from 5-7pm. For further details and to reserve a place contact Naomi Britton at n.britton@qmul.ac.uk

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