A way out for outsourcing?
18 February 2019
It may have got a bad rep recently but that doesn't mean we should vilify outsourcing, argues Stephen Roots, chair of The Institute of Workplace and Facilities Management (IWFM)
It’s been 11 years since the global markets hit meltdown and many established economies went into a prolonged period of recession. Thankfully, economies are growing, however with the uncertainty in the UK and EC markets due to Brexit and the slowdown in the Chinese economy, some organisations are still grappling with their cost base and pushing for cost reduction for short term effect rather than realising the potential that workplace and facilities services can deliver to the business.
Service giants hit the headlines
Towards the end of 2018 and into 2019 comparisons between services giants Interserve, Kier and Carillion – which collapsed in the first weeks of 2018 – were inevitable. There are similarities in size, scale and scope, but these are very different companies, and there are different facts. Interserve will undoubtedly be relieved in reaching completion on the first of four waste plants in Scotland, which according to some sources cost the embattled multi-disciplined provider over £200M. Whilst recent reports suggest that Kier are close to finalising a deal to sell its housing maintenance division for £20-£30M to steady its finances.
The current issues impacting on the likes of Interserve and Kier show yet again that a drive for low margins combined with poor procurement practice has led to an over-reliance on these mega businesses. Add to this the mode for thinking about facilities management as a cost centre to be cut rather than as a factor for added value and you have a recipe for risk.
Bringing added worth
In a way, outsourcing has become a victim of its own success because it has been good at providing a rationalised and efficient service which for years has provided great savings. But when there is no fat left to trim, and margins are targeted, problems arise.
We should not vilify outsourcing (there are plenty who want to do this; striving to achieve political gain for their beliefs that all services should be self-delivered). There are many fine examples of outsourcing firms delivering excellent services driven by value. And these firms are bringing added worth to client businesses such as access to expertise, technology, innovation and information management, delivered efficiently by high-quality people.
As The Institute of Workplace and Facilities Management (iwfm.org.uk) said at the time of Carillion’s fall, putting social value at the heart of procuring and delivering services is key in getting from lowest cost to best value. All of us that work in the industry know that this won’t happen overnight, but it is essential that a uniform framework is embedded, and government works with suppliers to achieve this. This will also set the tone and create the space for the rest of the supply chain, especially in the public sector.
Six guiding principles
There is no single approach to restoring public trust in the outsourcing model, but there are some key principles that have been distilled from discussions between senior workplace and facilities professionals – on both the client and service delivery side – as part of gathering evidence for post-Carillion Parliamentary Inquiries.
So what should we do? Perhaps adopting the six guiding principles below would steer the industry in a direction that removes the race to the bottom:
• A value driven approach, incorporating quality and social value, which delivers for all stakeholders
• Enabling realistic margins
• Up-skilling for professionalised procurement processes, with shared objectives, shared data where possible, and a partnership approach
• Consistent prompt payment
• Wide ranging minimum standards underpinned by a code of conduct
• Transparency about the service delivery, which enables trust between partners. The role of technology and data driven innovation should be promoted here.
It’s encouraging to see that Government departments are starting to recognise these principles and beginning to implement a value-based approach by giving more weighting to the quality element in bids, requiring social value elements to be evaluated in contracts and providing more opportunities for small suppliers. The challenge is now how to drive and embed these principles into mainstream procurement and selection processes.