Compelling and robust, this book provides an analysis of challenges in public service outsourcing and considers how to avoid failure in the future.
Crucially, it proposes a governance mechanism where outsourcing public services nurtures a less extractive corporate form that is oriented towards a productive purpose beyond maximising shareholder value, with implications well beyond public services. Under these proposals, fostering purpose-driven companies that are independently governed and use profit to pursue purpose can improve both public services and wider economic organisation.
Examining how barriers to implementing this idea within the existing EU and UK legal frameworks may be addressed, the book formulates actionable policy proposals.
Chapter 2 outlines typical problems in current public service outsourcing. Complex public contracts are inevitably incomplete, leaving gaps and ambiguities, and allowing discretion in their delivery, which contracting parties may exploit for their benefit. Exploitation becomes particularly problematic where the state relies repeatedly on private partners, creating risks of incumbency and lock-in effects that can give rise to dependencies, transferring capacity from the public to the private sector, sometimes permanently (in the form of institutional knowledge, for example). Where private suppliers operate a highly financialized governance model, incentives to exploit both incomplete contracting and incumbency situations are further reinforced.
failures in recent years, particularly in the delivery of more complex public service contracts. Britain was a pioneer in privatizing public services and in outsourcing (contracting to private providers) their delivery back in the 1980s, but since then it has struggled with problems in this field. The UK’s Institute for Government, for example, has identified, in the British history of public service outsourcing, several factors that consistently resulted in contracts going wrong or failing to meet their objectives. These included low competition, an inability to
extending to nearly every type of public services. Underpinning the trend has been an assumption – sometimes justified – that markets can do things better; they can direct resources more effectively and efficiently to where they are needed and extend the capacities of the state. That assumption does not mean the state has necessarily reduced its ambition to provide welfare – to ‘shrink’ its responsibilities. It might also sometimes outsource to ‘buy in’ additional capacity from the private sector to deliver more ambitious public services. Outsourcing enables the state
for a positive feedback loop between improving public service outsourcing and diversifying the wider economy by introducing more sustainable corporate ownership designs. 2 The government’s current procurement policies addressing VCSE organizations and SMEs already recognize some of these win-win opportunities (see Chapter One ), highlighting that governance in these organizations can help deliver ‘smarter, more thoughtful and effective public services [while also rendering] the economy more innovative, resilient and productive’. 3 A reframing of the existing
stakeholders even though they commit company directors to balancing investors’ interests against wider stakeholders’ interests. In effect, only investors, as shareholders, can take action against a commercially owned B Corp where they consider that directors fall short in exercising these duties. 46 In mutually owned firms, on the other hand, by virtue of being members, even non-investing stakeholders in the firm hold these control rights. This of course is exactly the reason why, in the context of public service outsourcing, mutual ownership might offer a solution to
local governments; public service outsourcing; administrative decentralisation within national governments (so-called ‘agencification’); and performance management. Overall, this synthesis of evidence confirms that there is much scope for improving the design of public management reforms. What is public management reform? ‘Public management reform’ is not a turn of phrase with an obvious, vernacular meaning. While the term ‘reform’ is perhaps indicative enough, the somewhat awkward configuration ‘public management’ is incongruous to most people. Beyond a small
owned firms into the contractual governance of public outsourcing instruments in order to reduce (though not fully avoid) the risk of exploitative and extractive behaviour by private partners. An extended policy, expanding the government’s current initiatives to support VCSE organizations, would more fully accommodate the flexibilities available in corporate law to design supplementary governance solutions to common problems in public service outsourcing: it would encourage, even expect, contracting authorities to consider, in their outsourcing decisions, the
shareholders the benefit of a share in the company’s profit may be replaced by either an alternative distribution mechanism (for example, distribution to employee or community members) or a restraint or even prohibition on profit distribution to ensure they are invested in the pursuit of purpose. In public service outsourcing, if the selection of financialized private providers exacerbates risks of exploitation because incentives of private and public partners are widely misaligned, then by selecting providers in sustainable corporate ownership, contracting authorities may
sector. For lower-paid employees, the evidence is to the contrary and progression opportunities declined. It also found that the successive re-tendering of contracts has produced an array of different terms and conditions among employees providing the same service. The context of austerity has led to renewed debate about the role and value of the private sector, with a view that it is the scale of public expenditure cuts that is primarily setting the objectives of public service outsourcing (Smith Institute, 2014), with saving money being the main purpose. This
