Local authorities warned of outsourcing risks

Public sector IT association Socitm has warned local authorities that outsourcing ICT functions will not always save money, and could actually seriously hinder them financially.

Socitm explained in the Costs of Outsourcing report that there are good reasons for outsourcing, but that contracting out a major component of the ICT service, or even the whole service, is a significant commitment and a risky business.

"Outsourcing should not be considered an inevitable response to austerity," said Martin Greenwood, author of the report.  

"Even smaller organisations that need to gain economies of scale, and struggle to keep up to date with technological development, should consider collaboration and sharing with other local public services as a genuine alternative."

Socitm compared the costs of certain public sector services over a decade, and found that most are more expensive when outsourced.

The IT body criticised the public sector for outsourcing components of ICT that it finds difficult to manage, and for failing properly to control outsourcing contracts.

If a local authority cannot manage an in-house operation effectively, it is unlikely to be any better at managing an outsourcing contract, Socitm warned.

In addition, many of the efficiency savings will end up being handed over to the supplier, and could have been made by the local authority in the first place, said Socitm. 

The loss of in-house expertise means that the local authority is unable to check, or even challenge, the view of the supplier. Some suppliers charge excessively for certain jobs as they seek to recoup profits lost through the typically hard-fought and costly competitive tender process, the association added.

Socitm also argued that suppliers tend to benefit from being experts at the process of negotiating contract terms, in contrast to the local authority which will go to market only rarely for a major outsourcing deal.

While long-term contracts tend to be favoured by contractors because of the high costs of the procurement process, and by local authorities because of the upheaval involved, writing terms that meet today's requirements and will still be relevant in 10 years' time is a significant challenge, said Socitm.

The group advised local authorities to seek professional advice when framing outsourcing contracts, and to offer only small ICT components to the market. Local authorities should also retain an in-house team as a source of expertise and competitive capability.

Britain's outsourcing industry is now almost as big as the financial services sector, generating more than £200bn a year, according to new research by consultancy Oxford Economics. The industry accounts for eight per cent of the UK's total economic output.