Public sector outsourcing contracts are 75 per cent above the going market rate, according to new figures from Compass Management Consulting.
Contracts are still as overpriced as they were last July, when the consulting firm first started looking into the issue and produced a report entitled Public Sector Using Irrelevant Measures of Value.
Although there have been a few cases where government departments have improved their contract costs since last year, the majority are still overpaying, said the consultancy’s managing consultant, David Locke.
“Above average is our view of overpaying,” said Locke. “And the public sector should get the best prices, not just average.”
Although the OGC has the remit to oversee the procurement of external services by public bodies, Locke said that in reality the larger government departments form their own contracts. “The OGC has no scale or expertise to procure on behalf of everyone,” he added.
Locke believes the major problem is the public sector failing to recognise the long term goal of outsourcing contracts because of its concern for short term gains. “It is a problem related to skills and motivations,” he said. “The reality is a contract needs to hold provision for changes.”
It needs to take account of policy adjustments, changing departmental needs and transformational projects, said Locke.
Ben Farrugia, policy analyst at The TaxPayers’ Alliance, commented: “The principal problem with UK government procurement - and with large IT projects in particular- is that it is carried out by people who lack sound understanding of commercial realities.”
Farrugia said fixed costs arrangements and Private Finance Initiatives (PFI) have not been successful in lowering risks associated with public sector procurements. “Consider the NHS’ NPFIT (The National Programme for IT),” he said. "The NPFIT initiative is a move to create a centralised electronic care record system for patients in England, but cost and security issues have continued to make it a controversial programme."
According to TaxPayers’ Alliance, the NPFIT has overrun by more than 439 per cent. A report by the Alliance notes that in an original NHS brochure advertising the scheme, the cost was planned at £2.3bn, but the most recent cost of the scheme disclosed by the National Audit Office is £12.4bn.
In order to realistically assess a procurement option, people with the right skills need to be used who can appreciate the enormous complexity involved, Farrugia continued. “But also it needs to involve at all times those people who will use it.”
The TaxPayers’ Alliance lists a number of reasons why so many public sector budgets are not delivered on budget, including the failure of public sector officials to properly specify what is desired from a project - additions are made when the project is ongoing and this increases the size and project cost. Also, many contractors underestimate the cost of the project in order for it to gain approval, said the Alliance.
Mike Kenworthy, ICT partnership manager for Castle Morpeth Borough Council, said he had decided not to outsource IT because he did not believe it would save the council costs. He advised councils to ensure a contract is highly specified with target LAAs inbuilt before they decide to go with a provider.
Andy Honess, the managing director of business intelligence (BI) firm QlikTech, said outsourcing providers are increasingly buying BI technology to monitor what they are giving back to customers. Honess said he had noted an increase in QlikTech’s sales to outsourcers.
