After news that EDDC is spearheading an IT parthership with Exeter and Teignbridge,we reported on the fiasco in Somerset when an IT partnership went spectacularly wrong here:
Following on from this is this critique which could equally be applied to the Skypark vanity project:
Mutual incentives?
The Somerset report says each side in an outsourcing relationship needs to be motivated by similar incentives. But can that ever happen? Councils exist to provide good public services as cheaply as possible. Suppliers exist to make as much money as possible. There can only be similar incentives if a council is so inefficient that there’s enough spare cash to cover council savings and the supplier’s profits. If there isn’t the spare cash, the council, in its enthusiasm to do something different by outsourcing, can simply fictionalise the figures for benefits and potential savings.
This creative (and legal) exercise is perfectly possible given the depth of the conjecture needed to project costs and savings over 6 years or more. Part-time councillors who are considering a big outsourcing contract have the time only to glance at summary documents or the preferred supplier’s Powerpoint slides. They are unlikely to spot the assumptions that pervade the formalised legal language.
During such a pre-contract exercise, the most sceptical councillors are often excluded from internal scrutiny, and the disinterested ones who are admitted into the inner chamber can find their heads swimming in a supplier-inspired language that either swathes uncertainty in the business jargon of near certainty or obscures reality in opaque legalese.
How are these lay councillors to get at the truth? Do they have the time?
Big outsourcing deals between councils and suppliers are inherently flawed, as this Somerset report indicates. Too many such deals have ended badly for council taxpayers as Dexter Whitfield’s investigations have shown.
But still some councils sign huge outsourcing deals. Their leading officials and councillors say they took lessons from failed contracts around the country into account. But what does that mean? If a deal is inherently flawed, perhaps because of diverging incentives, it is inherently flawed.
The disaster that is Southwest One could be a priceless jewel in the public sector’s display case if it serves to deter councillors and officials signing further large-scale council outsourcing deals.
When you click on the link to Dexter Whitfield’s investigations, you get this interesting comment:
The number of PPP strategic partnerships has increased 35% in just two years with 18 additional contracts valued at £8bn. 60 contracts are currently operating, four were terminated and one completed the contract term, but was not renewed. A further two are being terminated in 2014. Strategic partnerships originated in ICT and corporate services, but have extended into planning, education, police, fire and rescue and property services. The failure rate is very high – nearly 1 in 4 contracts are either terminated, reduce scope as services are brought back in-house, and/or suffer major financial and operational problems. Savings, new business and new jobs targets continue to be illusive.
East Devon Watch 
Leaving aside issues of the quality of services and of ease or difficulties to change the contract, in my experience any straightforward outsourcing contract which is made with the overall intention of saving money is doomed to failure because:
You transfer the staff under TUPE rules, so they get paid the same as they were before.
o The service provider needs to add people to manage their side of the contract (say 15%).
o The service provider needs a profit – add (say) 15% to the costs.
o The customer needs additional staff to manage the contract from their side – say a further 15%.
The costs of running the same IT systems with the same staff is now c. 50% greater, so you need to achieve efficiency savings of 33% just to break even. And if efficiency savings of 33% are that easy to achieve, why not achieve them within the existing internal IT arrangements and avoid outsourcing altogether.
This is, however, different from a shared services arrangement with similar organisations where there can be real synergistic savings to be made by having common systems, and where if you can achieve the less adversarial relationships that are possible in shared services, you don’t need the same level of contract management.
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