Outsourcing of government services: could the UK model be reproduced globally?

Across the globe, public agencies are putting services out to compulsory competitive tendering. As public private partnerships (PPPs) proliferate and state agencies become both the procurer and regulator of services, is the public getting value for money (VFM)? Is outsourcing to powerful international corporations compatible with democratic control and accountability?

A paper from the University of Manchester’s Centre on Regulation and Competition suggests that developing countries should heed lessons learned from the United Kingdom’s experience of the Private Finance Initiative (PFI) and the PPPs it has spawned. Arguing that many regulatory and accountability issues have not been addressed, it questions whether PFI/PPS delivers VFM or efficiency. It highlights difficulties in enforcing and terminating contracts and transferring risk to the private sector.

The UK is a leading player in promoting the view that the opening up of domestic industries and services to international competition will reduce poverty. It has greatly increased the scale of public outsourcing and supported World Bank, IMF, WTO and European Union initiatives to facilitate the transfer of public services to private sector provision via adoption of commercial account practices and investment appraisal procedures.

The report highlights the difficulties in detecting whether the new forms of public procurement have delivered VFM. It notes that:

• The Audit Commission, the UK government’s watchdog for local government and the National Health Service, has expressed concern that the lack of publicly available finance for conventional public procurements has led to the selection of projects based upon what can be done under PFI.
• The Public Accounts Committee has noted that as the National Audit Office does not have full access to all government expenditure, it is thus harder than it used to be for the UK parliament to scrutinise how the money it sanctions is spent.
• The public sector has been unable to relinquish risk and responsibility: expensive failures of computerisation for the Passport Agency and Benefits Agency were borne by the government, a travesty of the notion of risk transfer.
• PPP policy promotion distorts and drives the decision-making process at the expense of value for money in health and education.
• There is some evidence that UK public expenditure would have been lower without the increased external procurement.
• Whereas the UK Treasury used to exercise regulatory control to ensure that real expenditures were not obscured and future governments did not have to foot the bill for overspends, it now promotes a policy with unclear long-term costs.

The paper argues that if there have been difficulties in Britain – a country with a long tradition of public sector probity and accountability – then it is unrealistic to expect developing countries to embrace new forms of public procurement without considerable preparation and assistance. There is a need for:

• recognition that there is a possible conflict of interest whenever government agencies actively champion public sector outsourcing projects, while the same agencies are charged with controlling these them
• alternative models of control and accountability to demonstrate how high levels of effective decentralised decision-making can be sustained alongside high standards of public probity
• ensuring that performance monitoring is included in PPP contracts
• ex post facto public audit and scrutiny of external procurement and finances.

Source(s):
‘The regulation of and accountability for new forms of public procurement’ Centre on Regulation and Competition, Working Paper No. 17, by Jean Shaoul January 2002 Full document.
‘Public Services and the Private Sector – a response to the IPPR’, Catalyst Working Paper, Catalyst, by A Pollock, J. Shaoul, D. Rowland and S. Player, November 2001
‘Privatisation: Claims, Outcomes and Explanations’, chapter in Cultural Compliance, Greg Philo and David Miller (eds.), Longman, by J. E. Shaoul, 2000

id21 Research Highlight: 13 January 2003

Further Information:
Jean Shaoul
Manchester School of Accounting & Finance
Mezzanine Floor
Crawford House
Oxford Road
Manchester M13 9PL
UK

Contact the contributor: Jean.Shaoul@man.ac.uk

Manchester School of Accounting and Finance, UK

Fiona Wilson
Centre on Regulation and Competition
Institute for Development Policy and Management
University of Manchester
Crawford House, Precinct Centre
Oxford Road
Manchester M13 9GH
UK

Tel: +44 (0)161 275 2798
Fax: +44 (0)161 275 0808
Contact the contributor: crc@man.ac.uk

Institute for Development Policy and Management, The University of Manchester, UK

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