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Demands for cost cuts are driving local authorities to outsource more services. But EB Young warns, they must be aware that accountability for any failures remains with them 

 

 

 

Local authorities are facing increased demands from central government for efficiency in this difficult economic climate. The long-term challenge for councils is to find ways of maintaining services as government grants and local revenues are reduced. Efficiency savings are also at the heart of the Treasury's Operational Efficiency Programme (OEP), which suggests a number of ways in which councils can deliver required savings.

 

There are fears this could mean job losses over the next five years, but also that councils will be expected to increase outsourcing, bringing in outside parties and companies to run an increasing proportion of council operations. Frontline services and back office operations are two clear areas that have seen large scale outsourcing as local authorities try to slim down their methods of operating and delivering services to their communities.

 

The 2009 Budget revealed that the government accepted the recommendations of the OEP in full. The OEP sets out how central government will achieve £15bn in efficiency savings, but it also means pressure will be exerted from Whitehall on councils to outsource or share services in back office and IT systems. It is widely believed that social services will also be targeted for savings.

 

However, concerns have been raised that local authorities are acting with unnecessary risk when building their outsourcing business models. The failure to understand that bringing in third parties to run services changes risk provisions means some councils may not be able to step in if problems arise, and this could mean their residents suffer. The breakdown of outsourced services caused by a failed outsourcing partner could terminally affect a council's reputation.

 

One key benefit of outsourcing frontline or back-office operations is the saving this delivers. While it may mean efficient operations, and brings in additional experience, outsourcing does create complex delivery chains which need careful risk management, as an Audit Commission report released last April noted. Compromised data security and quality control are two of the serious implications if outsourced services break down.

 

The insurance giant Zurich, which supplies cover for many councils, has also reacted to the concerns by releasing a briefing paper which raises some questions for local authority leaders and chief executives. These include:

 

  • How aware are councils that responsibility for risks to service delivery ultimately rests with the authority and can't be delegated to third parties?
  • Has the local authority established that the supply chains' project and risk managers understand their authority's tolerance limits when outsourcing risk for the services?
  • How does an authority confirm that the tendering process for outsourcing includes risk-assessing interested third parties?


Andrew Jepp, head of local government at Zurich, wants the risks to be considered at high levels in councils. He provides examples which indicate where local authorities have gone wrong: "Recent high-profiles examples of data security issues, such as ContactPoint [the controversial online government database holding information on 55,000 vulnerable children], and the inadequate provision of social care delivered through third party contracts, are testament to the kind of exposures local authorities face when handing over sensitive information and care duties to third parties.

 

"Reinstating a commissioning authority's ability to deliver, should a breakdown occur, will present significant challenges and must be considered at the outset of any arrangement."

 

Zurich is also concerned at a series of misconceptions by councils as to how outsourcing affects their responsibilities. These include local authorities assuming that accountability and risk can simply be delegated to third parties and that new delivery systems and liabilities will be covered by existing insurance arrangements. Jepp believes: "At risk are successful outcomes for the community and the ultimate resilience of the authority itself."

 

This should all provide food for thought for local authorities eagerly seeking outsourcing solutions to counter decreasing funding. Outsourcing may well provide large benefits to your authority, but have you thought about the consequences if the third party fails?