On 20 February 2019, the UK government’s Government Commercial Function published “The Outsourcing Playbook”[1] outlining a series of key new policies for making outsourcing decisions and contracting with outside suppliers for the delivery of public services.
Against a backdrop of increased scrutiny of government outsourcing, Carillion’s collapse in January 2018, and ongoing financial problems of some of the other outsourcing companies, the Civil Service carried out a study (completed in March 2018) of what, why and how government outsources, working in collaboration with the outsourcing companies, in order to identify “the challenges associated with delivering public services and agree the reforms that will set the conditions for healthier practices in the future.”[2]
With an overriding objective of rebuilding public trust in government and its suppliers, the playbook aims to capture best practice from across government and highlights some different approaches and new behaviours for the future. These new approaches and behaviours are described in 11 key new policies that all central departments are expected to follow when considering and implementing outsourcing arrangements. The playbook is accompanied by a series of guidance notes and tools covering which go into more detail in support of the new policies, and which should be read alongside the February 2019 update of the Supplier Code of Conduct[3].
The key new policies are:
- Publication of Commercial Pipelines – government departments are to publish their commercial pipelines to help suppliers to understand the government’s long‑term demand for services and better respond to contract opportunities
- Market Health and Capability Assessments – every outsourcing project will carry out a health and capability market assessment early on in the Preparation and Planning stage to identify potential limitations in the market and consider actions which might increase competition/market health such as contract disaggregation
- Project Validation Reviews (PVR) – all complex outsourcing projects (not just government major projects) will now be required to go through PVR review to help assure deliverability, affordability and value for money
- Make versus Buy assessments - before deciding to outsource a service, a thorough ‘make or buy’ assessment must be carried out
- Should Cost Modelling – every complex outsourcing project will produce a ‘Should Cost Model’ (as part of the make or buy assessment) to gain a better understanding of the costs of different service delivery models and protect the government from its ‘low bid bias’ tendency
- Requirement for Pilots – when outsourcing a service first time, a pilot should be run to better understand the environment, constraints, requirements, risks and opportunities, provide a good quality data and can assist with the drafting of technical specifications
- Key Performance Indicators (KPIs) – all new outsourcing projects must include performance measures that are relevant and proportionate to the size and complexity of the contract, with three KPIs to be made publicly available. The KPIs will be the foundation of smarter contracts, designed to incentivise delivery of things that matter and provide clarity about how the service is working for the public
- Risk Allocation – contractual risk allocation will be subject to greater scrutiny and engagement with the market than previously, where inappropriate risk allocation has been a “perennial concern” of outsourcing companies looking to do business with government
- Pricing and payment mechanisms – these will also be subject to greater consideration and scrutiny to ensure that the contract pricing and payment mechanisms incentivise the desired behaviours or outcomes, and to deliver a thriving, dynamic and sustainable outsourcing market
- Assessing the Economic and Financial Standing of Suppliers – when assessing the risk of a supplier going out of business, every outsourcing project must meet a minimum standard of testing which should give government a better understanding of financial risk and better able to safeguard the delivery of public services
- Resolution Planning - although major supplier insolvencies are infrequent, suppliers of critical public service contracts must now provide resolution planning information to help to ensure government is prepared for any risk to the continuity of critical public services posed by the insolvency of critical suppliers
The playbook will be essential reading for outsourcing suppliers to UK government who will no doubt welcome the increased use of pilots for complex service delivery, the publication of commercial opportunities in the pipeline and, they will hope, a more considered and realistic approach to risk allocation.
[1] https://www.gov.uk/government/publications/the-outsourcing-playbook
[2] Foreword: John Manzoni, Chief Executive of the Civil Service
[3] https://www.gov.uk/government/publications/supplier-code-of-conduct
