By Nick Heath, 4 April 2008 15:33
NEWS
Taxpayers' money is being squandered on public sector outsourcing deals where costs are ballooning up to 75 per cent more than the going market rate.
Lacklustre controls on spending over the full lifetime of government outsourcing contracts are leading to "poor value for money" because public sector organisations are lured by low upfront costs, claims Compass Management Consulting.
The consulting group made its claims in a submission to the government's Public Services Industry Review (PSIR) that is looking at how to improve efficiency in the £40bn-a-year public outsourcing market.
Nigel Hughes, consultant at Compass, said: "There is more focus in the public sector on the initial tender price and not the long-term price of the contract."
The submission says: "This leads to the "bid it thin and get it in" strategy of many outsourcing providers who price contracts at up to 18 per cent below market rate on day one rising to 30 per cent above market rate by year three of the contract.
There is "no accountability and no way of calibrating value for money as the contract runs" it says.
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It claims that providers are forced to "claw back" their losses after being pressured to lower their bid to win the tender.
Hughes called on the government to lay down a blueprint for best practice.
Compass said that managers and systems need to be put in place to work with supplier to monitor performance and control spending once the contract gets underway, similar to the setting up of a vendor management office.
The submission refers to a government agency paying 65 per cent above market rate for servers and storage and a major government department paying 20 per cent more for outsourced desktop, servers and infrastructure despite its scale.
The PSIR finished taking submissions on Friday 4 April, including from major outsourcing providers like LogicaCMG, and is being headed by DeAnne Julius after being commissioned by the Department for Business, Enterprise and Regulatory Reform.
Comments
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1. Brian Murray
Very good points here & I really don't think they are either new nor confined to the public sector.
We need to think and think again when it comes to transformations undertaken for economic reasons (and yes, I do think this applies to much more than just IT!)
Strangely enough I have seen the large outsource companies sharply focus their goals on outsourcing deals over the last few years. I personally think that areas such as SOA, SaaS and modularisation will mean we start to view managed service arrangements in completely different ways very soon. Perhaps this is why the outsourcers are so keen to secure accountancy-driven customer deals while they can?!
2. tinasilvee
Outsourcing has so many benefits:
1) Cost Savings
2) Time Zone Benefits
3) Quick Turn Around Time
4) Standardizing Business Processes
and many more....
3. Sam Prince
Schools are next in this long line of public sector "privatisation from within". The govt's Building Schools for the Future scheme aims to replace public sector IT staff with expensive private sector deals, typically chock-full of hidden costs to sting schools down the line.
What's more, the staff delivering the service will be a pared-back selection of the same public sector people, delivering poorer service to the schools at a higher cost to the taxpayer.
The schools are coerced to fall in line with the scheme by the threat of missing out on millions of pounds of investment in their building fabric if they don't comply.
4. Roger Huffadine
I really would like someone to go to prison for this neglect. It was always obvious that outsourcing would be more expensive but this smacks of the olden days when defence companies ripped off the government. If the Whitehall Mandarins are stupid enough to have let the same thing happen again then they should be singled out, prosecuted and jailed.
5. James Button
Yep! Place I worked at - the 'Purchasing/Contracts/Legal' departments took a cheap contract, made cheaper as they accepted a condition that the 'environment' would not be changed over the life of the project.
In reality, from the 3rd party's view, that meant:
No hardware upgrades.
No software changes.
No software upgrades.
No corrective fixes.
or my employers would be in breach of the contract conditions, and thus due to pay for all the following work on a piecework basis.
Attitudes changed somewhat when the IT technicians advised that that limitation should also apply to 'user access and resource allocation' as in 'no changes' meant that the contract conditions precluded any of the changes that would be needed for the 3rd party to be given access to any system resources.
6. Nick Cole
We told you so comes to mind!
This is a consequence of short sighted bean counting and political imperatives overtaking common-sense and professional advice.