Public sector, Outsourcing,PwC

Public sector not yet maximising outsourcing benefits, says PwC survey

05 May 2007 | (News)

While outsourcing is perceived to be working well as a delivery model, the public sector has yet to achieve the full potential of the benefits, according to a PricewaterhouseCoopers LLP survey of contract managers and service providers involved in the day-to-day management of public sector outsourcing contracts.

Two-thirds of respondents said they believed that outsourcing helps the public sector achieve its anticipated benefits. Respondents reported a number of important outcomes from outsourcing contracts, for example reduced costs, higher service levels, improved customer satisfaction and better management of the risks of the existing service. Two-thirds of respondents felt they had the right relationship with their service provider and there was overall satisfaction (87%) with the financial robustness brought by the private sector.

However, the survey revealed that there is more to be done to improve both the working relationships and the outcome of the contracts. It also indicates there is a gap between expectation and reality when looking at important but less tangible areas. For example, when selecting a service provider, the most important single factor for the public sector was value for money (VfM), as cited by over half of respondents, but levels of satisfaction with this were significantly lower.

At the same time service providers believed that the most important factor for their selection was their track record/experience of similar projects, with VfM rating low on their reasons for being chosen. As value for money is deemed most important for the public sector when choosing a potential service provider, yet low in satisfaction levels, it appears to be a critical area for outsourcing partners to get right.

Roger de Montfort, partner, PricewaterhouseCoopers LLP, said:
“There are some interesting learnings for the public sector to ensure that the benefits of outsourcing are maximised, both in the future and in contracts currently in operation.

“With the public sector’s increasing drive towards efficiency and the achievement of more effective spending, public sector contract managers need to focus on better planning in the pre- contract signature phase, building sustainable relationships with their providers and managing the change that is inherent in an outsourcing contract.”

The survey highlighted a number of key areas for the public sector to consider in order to achieve the benefits of outsourcing:

> Better planning, including clearer definitions of requirements for service, scope and contingencies.

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> Business cases should be built on a realistic, rather than optimistic, scenario basis. Prudent cost models and adequate contingencies should be factored into the decision-making process.

> A clearer understanding of how best to work together with providers is needed. Although two-thirds of respondents rate their relationship with the service provider as good, satisfaction levels appear lower against the level of importance placed at the tendering stage.

> Recognition that contract change is an inevitable part of the outsourcing lifecycle. Change should be anticipated, with robust mechanisms built into the contract to allow flexibility – over 80% of respondents said it was necessary to amend the contract after it started, in order to achieve the desired outcomes.

> Contract disputes appear to be common. Over 40% of respondents were involved in specific disputes with their service provider but these were generally dealt with to the satisfaction of the public sector client. Over 20% resorted to mediation or legal advice to resolve the dispute.

> Exit provisions need to be in place and kept up to date. Only 5% of respondents said they had a detailed exit plan.

PricewaterhouseCoopers LLP identified approximately 250 relevant outsourcing contracts across the public sector in the UK. Telephone interviews were conducted with 41 senior level contract managers in the public sector and six private sector service providers. The types of contracts included finance and accounting, human resources, IT, strategic management and business processes. Typical contract terms were as long as ten years and the average total value per surveyed contract was £170 million. The research was conducted between October and December 2006 by PricewaterhouseCoopers International Survey Unit.

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