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News & Updates

26/07/16
In an increasingly tough economic climate many councils are considering outsourcing. In the face of relentless cuts it can be seen as an economic necessity.

But it should not be confused as an easy option for efficiency. The recent legal dispute between Cornwall Council and BT over its £160m outsourcing contract ought to be a cautionary tale.

Once a decision is taken to outsource, the responsibility for running a competition to find the most appropriate supplier is usually given to the procurement team. Their task is to ensure the competition is run in accordance with the contract scope.

However, the reality for most councils is that price becomes the main consideration when evaluating bids. But through many years of experience, we have found that if the price is too low and the supplier cannot make a desirable margin, something has to give. The likelihood is that the quality of the service will be poor, which can also ultimately damage the reputation of the council.

One of the key issues of procuring services from outsourced suppliers is the limitation of their own resources. The result is that the council finds itself in competition with the supplier’s other customers. And unless the supplier is making money, they will not prioritise the service by assigning their top talent.

In fact one of the most common bugbears of customers is that once the contract is won, the supplier appears to lose interest.

The only way to prevent this from happening is for councils to become savvy customers. One simple step is to put a client-side management plan in place, ensuring that your supplier keeps you updated on contract progress, performance metrics, and data on any emerging problems to mitigate risks and manage political queries.

Councils can retain the balance of control by setting service levels and targets for suppliers, supported by penalties for failing to reach them. Establishing mechanisms for financial recompense for poor delivery from the outset is an effective way of ensuring service quality. This is standard practice in the private sector. Suppliers may not expect this from the public sector – but is it key in becoming more intelligent customers.

Although service levels should be in the contract, councils should not rely solely on the written agreement and instead actively manage the relationship.

This can be challenging as it requires understanding the issues from the supplier’s perspective. When problems arise, remember it takes two to Tango, so compromise may be needed on both sides. Alpine has experience in providing this kind of independent mediation to ensure organisations get the best value for money because as we know terminating a contract can be costly.

We’d recommend that in addition to the traditional dimensions of cost and quality, your procurement criteria should also include an understanding of:
  • The suppliers client base: ask them how they will assign their high calibre resources to support the council
  • Quality control and recovery: how their senior management will support their team when problems arise (as they inevitably will), to ensure swift resolution
  • Payment-by- result: setting performance payments can be effective if you are looking to achieve outcomes rather than activity
  • Enabling innovation: going for the lowest cost can be a disincentive for innovation. Now more than ever councils are required to find new ways of working, so make sure you still have the scope for creativity and innovation
  • Access to data: Suppliers handle and generate an invaluable source of customer data when they deliver services on your behalf. They often do not share this with you – yet it fuels their competitive advantage. This data can tell you a lot about your citizens, their needs and the way they are accessing services. So have an open discussion about shared intellectual property and anonymised access to data.

Running a competition and selecting a supplier is the easy part. Most bidders have the capability to provide the service - but few high level resources and operational excellence to deliver and support all of their clients with parity.

So simply outsourcing a service in response to a delivery or financial headache is not a good starting point. You should keep your eyes on the prize – the long term goals.

Case examples

Alpine has provide short, intensive support to councils wanting to become intelligent client, in the following areas:
  • Designing your procurement brief and process and understand the underlying supply chain
  • Managing the transition to a new supplier
  • Acting as an objective observer or ‘critical friend’ in evaluation stage
  • Acting as an independent mediator to help find mutually acceptable business-to- business solutions when problems arise.

John Yard is an Alpine Associate with extensive experience of large scale procurement and commissioning processes, creating enabling commissioning cultures and capacity. He has helped organisations across local and central government from initial bid stage to conflict resolution over contract disputes.

Ruby, Dixon is Head of LG Practice at Alpine. As a former senior officer in LG she has client-side managed many outsourced contracts and services of significant value for the public purse. Contact her at: rdixon@alpine.eu.com or ring: 0203781345/ 07428018269

About

Alpine is a leading provider of interim management, thought leadership and consultancy services. Our core values of integrity and transparency underpin everything we do.

Alpine Resourcing

020 3478 1340

info@alpine.eu.com

Alpine Resourcing, 20 Little Britain,
London, EC1A 7DH