Last Word: The UK’s Destructive Love Affair with Outsourcing
| Published date | 01 March 2024 |
| DOI | http://doi.org/10.1177/20419058241238194 |
| Author | Alice Moore |
| Date | 01 March 2024 |
40POLITICAL INSIGHT•MARCH 2024
Last Word
The UK’s Destructive Love Affair
with Outsourcing
The recent ITV drama series
Mr Bates
vs The Post Oce
showed British
television viewers what a High Court
judge had found years earlier: the
Horizon system installed in Post Oce branches
across the country was riddled with bugs and
fell well short of acceptable security standards.
Revelations in the wake of the scandal showed
that the Post Oce knew about these problems
from an early stage but continued to defend
the system and their supplier, Fujitsu. They
prosecuted almost 1,000 innocent people
based on an outsourced system they knew
could be faulty.
The Horizon scandal is the latest in a long
line of public scandals arising from contracts
between government bodies and private
suppliers. Before Horizon, it was the ‘VIP’ lane
for Covid contracts, before that the collapse of
procurement giant Carillion, and before that
G4S and Serco overcharging for electronic
tagging. Why does outsourcing keep failing?
And why do governments of all colours keep
doing it?
What went wrong?
The problems with the Horizon contract are
typical of many government contracts. To
start, low-quality bidders could undercut the
competition in the initial award. The original
was a private nance initiative (PFI), where
the supplier themselves invests in whatever is
being built – a hospital, school, a technology
system – and gets paid by leasing it back to the
government. The winning consortium, which
would eventually be taken over by Fujitsu, won
the contract because it oered to front the entire
development cost. It scored worst on quality.
The contract was later renegotiated as a
standard fee-for-service contract, but by then
it didn’t matter. Fujitsu had built the system
and getting rid of them would mean the cost
and delay of starting again. Governments are
vulnerable to suppliers oering deals that
are too good to be true and renegotiating
once they have become indispensable. Public
bodies must rightly be open about the award
criteria they will use and then stick to them.
But suppliers can use that transparency and
consistency to their advantage and come up
with strategies to game the criteria.
The team that won the Horizon contract
was ill-equipped to deal with a system of such
scale and complexity. The huge contract also
created a codependent relationship between
the Post Oce and Fujitsu. At the beginning,
the contract was such a large part of Fujitsu’s
business that they could not aord to lose it,
giving them incentives to brush mounting
problems under the carpet. Likewise, Fujitsu
became an integral part of the Post Oce’s
operation. Doing anything to jeopardise that
relationship or Fujitsu’s nancial position could
put the whole organisation at risk. That included
openly acknowledging problems with Horizon.
Even now, the government’s dependence on
Fujitsu is insulating it from the consequences
of the scandal. Over the years, Fujitsu bagged
a host of other government contracts. It
became a ‘strategic supplier on which a range of
government services now depend, from ood
alerts to the criminal records database. Despite
the High Court ruling in 2019, which exposed
Horizon’s failings, Fujitsu has since been
awarded £4.9 billion in government contracts.
It is easy to chalk this up to cronyism or
corruption, but there are more fundamental
reasons why it keeps happening. The scale and
complexity of what governments do means
that few companies are able to supply the kind
of contracts that they oer. In recent years, the
government has tried to break up and impose
limits on the size of its technology contracts
but has struggled to nd smaller providers or
join up multiple contracts. Public procurement
processes, while aiming to ensure fairness
and transparency, create barriers to entry and
advantage established suppliers who can play
the game.
Why do we keep doing it?
The UK’s love aair with outsourcing began
in 1980, when Margaret Thatcher introduced
compulsory competitive tendering into
local government. Although it was initially a
Conservative policy, New Labour embraced
it as part of their ‘third way’. It could shake o
the image of the party of big government,
while still increasing government spending.
The Blair government expanded PFI, originally
introduced under Major, because it could keep
the up-front costs of public projects o the
balance sheet.
Outsourcing is a powerful political tool.
Politicians can promise new or improved public
services without appearing to give money to
a much-maligned bureaucracy. They can also
allude to the innovative power of the private
sector to transform public services, without
having to come up with or defend specic
innovations.
The political appeal of outsourcing has not
waned and it’s likely to remain on the table at
the next general election. Labour has moved
away from their earlier position of bringing
public services in-house and is now considering
further outsourcing. Shadow Health Secretary
Wes Streeting has said that he will ‘hold the
door wide open’ to private sector involvement
in the NHS, which he claims will bring in
cutting-edge treatments and technologies.
The image of an army of ecient and agile
specialists waiting to take public services out of
the hands of a slow, generalist government and
transform them is a seductive one. It’s a shame
that more often public contracts are won by
rms who specialise not in innovative service
delivery, but in the area that really matters:
winning government contracts.
Alice Moore is an Assistant Professor in
public management and public policy at the
University of Birmingham.
From the Post Office Horizon scandal to the NHS, Britain’s politicians
are in thrall to a broken model of outsourcing government services,
argues Alice Moore.
Political Insight March 2024.indd 40Political Insight March 2024.indd 4019/02/2024 09:3119/02/2024 09:31
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