Thought for the day:The power of collective bargaining

Outsourcing and communications expert Martyn Hart looks at a hot issue of the day.If you asked the 70-odd members of the National...

Outsourcing and communications expert Martyn Hart looks at a hot issue of the day.If you asked the 70-odd members of the National Outsourcing Association to define the most important issue in outsourcing today, what do you think the answers would be?

Getting the cost right? How to split up the service? Which supplier will last? No.

At a recent meeting, we carried out a lightning poll and the top issue that arose was public sector outsourcing. Basically, suppliers were concerned over what was happening in the public sector, and their customers - the civil servants and their advisers - concerned over how deals should be structured.

It seems that there is real concern now about how much "power" is concentrated in the hands of just a few outsourcers. If you take the traditional tactical outsourcing scenario, the more business an outsourcer gets, the better his economies of scale and the lower the prices he can offer his clients. This makes sense, right? Wrong. What happens if a sizeable proportion of a government department's business is in the hands of one such supplier and that supplier goes bust?

You would assume some clause in a contract would come into effect and another company would take over. After all, these customers are assets and have a value. True, but does the contract stay the same? No matter what the procurement people say, the answer has to be not necessarily. If it was an uneconomic contract to begin with then is the new owner obliged to continue losing money? And if they are, will it be with good grace? Unlikely.

So what's the remedy?

It seems the customer, in this case the government, has a duty to ensure there is not only competition, but also a sufficient margin to ensure a reasonable return for suppliers.

With the "one government department, one outsourcer" model this may not be possible. Just taking tactical outsourcing, say for infrastructure, one could see for hardware alone there might not be the cost justification, or savings, to deliver a suitable mark-up for outsourcing.

However, if a number of like-minded departments shared similar infrastructure, then maybe you could offer a number of infrastructure contracts for various government departments, to a single supplier.

Contracts to provide common software or hardware for several departments, along with a small degree of customisation appropriate for the department in which the solution will be deployed, could also be grouped together.

The result: Instead of a single company supplying all the IT needs of a government department, the work is divvied up so that the department is less reliant on a single supplier. However because each supplier provides the same function for other departments, the whole show can be provided at better value than the sum of individual contracts. Meanwhile profit margins remain high enough to attract competition from several outsourcing firms.

This does, however, imply joined-up government. I think I've heard someone else talk about that.

What's your view?
How can public outsourcing be made better value for money? >> CW360.com reserves the right to edit and publish answers on the Web site. Please state if your answer is not for publication.

Martyn Hart is chairman of the National Outsourcing Association and practice director at Mantix, a consultancy that delivers value from complex programmes.
This was last published in September 2002

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