Outsourcing has become an increasingly fraught activity, with a number of high-profile events such as the collapse of Carillion dominating the news cycle in recent months. The launch of the Government Outsourcing Playbook is in part an acknowledgment of, and a response to, the heightened scrutiny that is being applied to outsourcing practices in general and public sector outsourcing in particular. It also coincides with updates and releases of a number of other sourcing-related guidance notes and recent tweaks to the well-known Model Services Contract to address matters related to interpretation of EU law post-Brexit.
New policies to underpin procurement practices
The Playbook introduces a set of new policies that central government departments are now expected to adopt and implement when outsourcing services to the private sector. Among other things, these are intended to drive better practices and more astute purchasing decisions by the Crown. Broadly, the policies are:
- Publication of commercial pipelines: All central government departments are expected to publish their planned sourcing activities.
- Market health and capability assessments: All outsourcing projects will conduct market assessment during preparation and planning stages.
- Project Validation Reviews: These cross-government assurance reviews used to be restricted to government major projects but will now apply to all projects designated as “complex outsourcing projects”.
- “Make vs. Buy” assessments: Before deciding to outsource, central government departments will now have to conduct “Make vs. Buy” assessments to validate whether a decision to outsource is likely to give the best outcomes.
- “Should-cost” modelling: For all complex outsourcing projects, “should-cost” modelling will be required to anticipate the likely overall project costs and, it is hoped, help to guard against “low-ball” bids.
- Requirement for pilots: There is now a presumption that first-time outsourcings will first be piloted before a “full live” outsourced service commences.
- KPI publication: All new outsourcing projects will have to disclose publicly three KPIs. These should be the most relevant to demonstrating whether the relevant contract is delivering its objectives.
- Risk allocation: Additional scrutiny measures are being introduced to ensure that risk allocation between customer department and service provider are appropriate and based on “genuine and meaningful” market engagement. Risks should sit with the party best able to manage them. The Playbook recognises that this is a common ground
- Pricing and payment mechanisms: As with risk allocation, pricing and payment mechanisms will be subject to additional scrutiny to ensure appropriate incentivisation of behaviours and outcomes.
- Economic and financial standing: All outsourcing projects will need to comply with minimum standards when assessing the risk of supplier financial distress.
- Resolution planning: Suppliers of “critical public service contracts” will be required to provide resolution planning information to safeguard against, and provide plans for, insolvency.
These policies attempt to create a “whole of government” approach and focus on critical phases within an outsourcing’s lifecycle. Of particular interest to many will be the explicit and mandatory inclusion of “Make vs. Buy” assessments, an emphasis on user-led design and development of service models, and the introduction of resolution planning to guard against over-exposure to financial risk and ensure that there are contingencies for managing through the effects of financial distress.
The policies also introduce a consistent nomenclature to public sector outsourcing, where outsourcings are categorised based on criticality and complexity. Suppliers, too, are categorised, with additional requirements and obligations (such as resolution planning) applied to suppliers that are delivering critical contracts or have substantial business with the public sector.
It is also clear from the way the Playbook presents the policies that, alongside the emphasis on a whole-of-government approach to market engagement, the increasing disaggregation of services and suppliers, and the impact of “digital disruption” has had an effect. Gone are the days of monolithic “big bang” outsourcings and, accordingly, the Playbook emphasises the need for departments to accommodate different ways of getting the right mix of technology, value for money and expertise. Instead, the Playbook encourages departments to develop sourcing strategies that take account of new technologies, business models and ways of delivering services to end users.
Guidance notes and a Brexit-ready Model Services Contract
In addition to the Playbook, there are a number of new and updated guidance notes that cover best practice for implementing the Playbook’s policies and principles. They also provide further detail on existing procurement processes and how best to use them, including competitive dialogue and competitive negotiation.
The venerable and well-known Model Services Contract has also been updated to include Brexit-ready clauses that address post-Brexit implementation of EU law. The Playbook continues to recommend the Model Services Contract as the starting-point for departments considering outsourcing and, alongside the Crown Commercial Service frameworks, continues to offer a versatile platform on which to build services.
A blueprint for improving sourcing strategies and relationships
The publication of the Government Outsourcing Playbook also shows that, despite the ups and downs facing the sourcing sector, there is still an appetite for sourcing solutions. And while nothing in the Playbook should come as a surprise to those who have been part of or witnessed the changing fortunes in the sourcing sector, the Playbook presents an opportunity for public sector customers and private (and third) sector service providers to improve how public procurement of outsourced services works.
Suppliers will welcome the express acknowledgment that, in order for outsourcing relationships to be successful, suppliers need both clear, competitive processes and the ability to make a fair return on the services they provide. They will no doubt also approve of the recognition that keeping bid costs down should be a key principle when designing and running procurement processes.
Perhaps what the Playbook signals more than anything else is that the Crown has taken on board the lessons of recent outsourcing failures and is ready and willing to engage with suppliers in a way that best delivers a genuine win-win outcome for outsourcing. We expect the Playbook will in turn be picked up as a reference guide for large organisations in other sectors and used by suppliers to shape and configure their offerings to meet an increasingly sophisticated and mature customer market.