Out-Law News 3 min. read

Outsourcing 'best practice' codified for UK public sector

A move to codify best practice around outsourcing in the UK is a significant step towards ensuring the full benefits of outsourcing are enjoyed by government departments and other public bodies, an expert in public sector IT contracts has said.

Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said the Cabinet Office's publication of a new 'outsourcing playbook' and a series of other reference documents offer "a bible of guidance" that those running procurements can turn to ensure they "follow an effective and rigorous process".

Colvin said, though, that skills shortages and time pressures on procurement processes remain a challenge to implementing effective sourcing arrangements in the UK public sector.

"The playbook is welcome because it codifies a consistent approach to how decisions are made around outsourcing, including around how the overall process should work and how to achieve an effective outcome. Guidance on steps to properly identifying the right functions to be outsourced and choosing the right supplier, to achieving value for money are key," Colvin said.

"Perhaps the biggest challenges to running procurements will be the time needed to put in place some of the 'best practice' tools that have been outlined – such as pilot schemes – and the expertise need to properly scope outsourcing projects and manage the procurement process. It will remain important for the extra time needed to be factored into what can be a packed procurement schedule, and for government departments and other public sector organisations to seek advice as appropriate," he said.

The new outsourcing playbook guides procurers through the preparation and planning stages for outsourcing projects and encourages "early engagement" with the market to, among other things, "promote forthcoming procurement opportunities and provide a forum to discuss delivery challenges and risks associated with the project". 

It also calls on procurers to make a strategic choice of whether to "deliver services in-house, or procure from the market" and outlines a process to follow to inform this decision.

"A thoughtful and informed 'make or buy' decision process will reduce downstream risks, which can help ensure projects are delivered on time and on budget, and will minimise the need for major contract negotiations, bail outs, early contract terminations and/or even (temporary) government step‑in," according to the playbook.

Colvin said: "The 'make or buy' decision-making process will help government departments and others that follow the playbook to ensure that they outsource functions and services only where it is appropriate to do so. The detailed analysis procurers will undertake will also help to justify outsourcing decisions in the event of criticism, by allowing them to evidence the assessments they have made as to the barriers to delivering in-house and the benefits of sourcing from the market and the overall sourcing decision."

The playbook states that where public services are to be outsourced for the first time, government procurers should generally run a pilot scheme first before a decision is taken on "a long term delivery model".

"There should be a pragmatic approach to the use of pilots, and procurers should make clear to the market what the outcome of their pilot will be – whether it will involve a successful pilot being developed into a broader project with the chosen supplier of the pilot, or whether a further procurement exercise will follow," Colvin said.

Colvin welcomed the playbook's guidance on cost modelling, the setting of KPIs, risk allocation in contracts and endorsed the recognition given to the potential for broad social benefits to be factored into and derived from public procurements – in this regard, the playbook sets out a 'balanced scorecard' designed to ensure the social value of bids is taken into account when evaluating them, and that decisions are not purely based on financial considerations.

Colvin said it was also clear that much work had been done to help procurers in government and the wider public sector protect against the risk of insolvency of suppliers and the outcomes where that did arise. The issue has been driven up the agenda in the aftermath of the collapse of Carillion in early 2018 and a number of other major government suppliers reporting less favourable financial health.

"The detailed checklist to help shape resolution planning has clearly had a lot of thought put into it and should help government procurers better manage the risk of financial distress and insolvency among selected providers," Colvin said. "The checklist explains not just what procurers need to be looking at, but why they should be looking at it."

Colvin said that it will be incumbent on government departments to follow the approach outlined in the new playbook and the related documents, and he recommended that the advice could certainly be of benefit to other public sector organisations and those in the private sector too.

"While private sector businesses do not face the same restrictions when procuring services from third parties as public bodies, without a doubt there is useful advice in the playbook for all organisations considering outsourcing, particularly in relation to key sourcing decisions and supplier engagement," Colvin said.

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