In reality the success of outsourcing can only be determined by close review of the original business case and drivers along with an assessment of contract management success.
Outsourcing decisions are driven by these objectives:
- Achievement of cost/efficiency savings
- Redistribution of business and commercial risk
- Improvements to service delivery and control
- Access to specific skills or expertise
- Business transformation, modernisation innovation
In the current economic climate, cost savings tends to be the most common and high profile driver for outsourcing of services. Delivering savings represents a key risk for the outsourcing authority, namely balancing cost, quality and value.
In an ideal world bidders would differentiate their proposals through lower costs, via improved processes, better use of data, improved management techniques and delivery, unfortunately this does not always happen. An obvious way to deliver cost savings is to reduce service levels, resulting in headcount and cost reduction. The outsourcing authority must exercise caution. Reducing service levels should always be reviewed with stakeholders and adopted with customer input and buy in. Changes to service levels should be agreed and communicated prior to adoption, to avoid delays and costs late in the process. Additionally, if the outsourcing process delivers benefit purely by a service reduction, the outsourcing authority could probably have achieved the same result, with potentially higher savings by making the changes themselves.
In an ideal world bidders would differentiate their proposals through lower costs, via improved processes, better use of data, improved management techniques and delivery, unfortunately this does not always happen.
Many outsourcing authorities believe that appointment of a private sector service provider will automatically achieve the desired benefits, and bidders will usually promise this. However there is significant default to ‘business as usual’ service delivery after appointment and a tendency to incremental service reduction. This creates frustration across management and end users. This default to business as usual is evidenced in industry surveys, particularly in the FM industry, where innovation and transformation are often cited as areas where reality does not match expectation.
So how can this be avoided? Unfortunately public procurement processes can contribute to unsuccessful appointment of outsourced solutions, because:
- The requirement for fairness and transparency has resulted in evaluation criteria so detailed that they point to the answers required. This stifles innovation and risk transfer, favouring best marketing, not best service delivery.
- Evaluation criteria are often weighted towards cost, losing focus on quality of service, and evading transformation and innovative practice.
- The restricted OJEU process can be narrow, preventing detailed negotiations with bidders, thus constraining innovation. The competitive dialogue process allows better exploration, but is time consuming and cumbersome. It requires significant resource input and expenditure in order to bid.
- Procedure can take precedence over outcomes: ’doing things the right way’ rather than ’doing the right things’”.
How can the public sector secure value when outsourcing FM services?
- Decide why you are outsourcing. Is it to change the business risk profile? To outsource non-core services? To access external expertise? Ensure the rationale is understood.
- As part of a business case, create clear success criteria and keep these in focus. Make the criteria a measurable element of the contract, linked to the service provider’s reward.
- Be open about in-house performance or organisational problems, and try to resolve them. Don’t outsource a problem. Undeclared issues can lead to contract renegotiations, especially if the service provider’s risk profile is affected.
- Be clear on current service levels before determining acceptable outsourced service levels. Bidders should be encouraged to meet the identified levels and deliver future cost benefits by innovative and transformational practice.
- Be clear on the data that underpins evaluation of bidders’ proposed price and service..
- Put processes in place to deal with service provider failure whilst ensuring service continuity. Invest in the retained ’intelligent client’ function, as effective management of outsourced service providers is complex.
A report by Oxford Economics, commissioned by the CBI, suggested that major efficiency savings per cent could be achieved by outsourcing from the public sector. The CBI believes savings of circa £22bn are theoretically achievable on the £278bn UK public services spend, a prize worth pursuing, with care.
Faithful+Gould has delivered FM outsourcing benefits to many of our clients. We can manage your risks and deliver benefit by providing market knowledge, subject matter expertise and end to end programme management of the process, from business case though to procurement and mobilisation.