Patrick Butler reports on the frantic rush to outsource local government services. Both he and I saw this coming some time ago. When councils have to cut so much so fast, an obvious way of doing it is to look around for people who say they can do it cheaper.
Commenting on some of the firm’s recent research, KPMG’s Ian Hasdell said:
A picture is being painted here of almost frenetic activity levels as those in local government demonstrate there are no sacred cows when it comes to meeting the austerity challenge of delivering better outcomes with much lower budgets and a dramatically smaller workforce.
But last year, KPMG also told us that, on average, it took private sector service companies ten years to make efficiency improvements of 20 percent. Local government is being asked to do something close to that in less than five. Those councils with the toughest targets will have to do around 15 percent in two years.
“Delivering better outcomes with much lower budgets,” is therefore a pretty tall order – much taller than most firms in the private sector have managed. Better outcomes are extremely unlikely. Outcomes that are only slightly worse but which cost much less might be the best that councils can hope for.
Some public services have achieved ambitious change but this takes time and investment. To achieve this sort of cost reduction by 2015, while maintaining service levels, local authorities would have had to start in 2006. To be fair, some of them did.
But, as one of our leading management thinkers would say, we are where we are. For many local authorities, there is just not enough time left to make these cost reductions without damaging services. As they run out of options, they will inevitably call in the outsourcing firms.
The trouble is, as the KPMG report also notes, many councils do not have the expertise to manage outsourcing contracts of this size. There is a danger, therefore, that they will award services to firms which cut corners as well as costs. It is also likely that the large firms will take the lion’s share of the work, by offering discounts in return for the award of more contracts. Councils desperate to get costly services off their books may well grasp at such offers without thinking too hard about the longer-term implications. In some areas, smaller firms and social enterprises might not even get a look in.
This is the sort of thing that happens in all distressed organisations. Companies that are facing bankruptcy tend to slash and burn in a breathless struggle to dump their costlier activities. Sudden and drastic budget cuts will have the same effect on local authorities.
This time last year, KPMG’s assessment of the situation wasn’t quite so upbeat. Steph Beavis, Public Sector Director at KPMG in Cambridge, warned that councils were facing financial collapse:
I am expecting this challenge to be beyond some councils, which will run out of cash at some point in the next four years.
Which is why many of them are now starting to panic.
Decisions made under distressed conditions are seldom good ones. As Patrick says:
The risks are enormous, and the opportunities for chaos virtually unlimited.
It’s fire-sale time at your local council. As is usual in fire-sales, some people pick up very good bargains while others are left with a pile of useless junk. It doesn’t take much imagination to work out who the winners and losers are likely to be.