Monday, September 10th, 2012

The UK is probably 8 – 12 years behind USA experience with outsourced contracts. It has been evident for some time that in-sourcing was taking place at an increasing pace, particularly with IT contracts. Unsurprisingly, the public sector has had mixed experiences with outsourced contracts for a wide variety of services. The UNISON bargaining web-site is very informative in this respect. Clearly, risk is on the agenda in all outsourced decisions, as it is with in-sourcing decisions. It is the latter aspect upon which we will concentrate here. Services are delivered primarily by people. Many will have had the unsettling experience of being TUPE’d to a new employer and will have to face the reverse experience. Pensions will come to mind as will protection of employment terms and conditions. The manner in which the transfer is handled poses the obvious risk of services being provided by potentially, demoralised staff. The quality of HR services will speak volumes about the maturity of consultation and advice. This point will resonate with the employees of Virgin Trains as they contemplate their future.

There is little doubt that when the outsourced contract was signed there would be a contractual provision for the supply of a robust exit plan. Varying timescales would apply. In one situation nine months was permitted but four years later no exit plan existed. This poses the issue of why and who is accountable. It shines a light into the dark corner of contract management. If nine months was agreed then the contractor is in breach of contract. So why was no action taken? We suspect the main reason would be that we ‘are working in partnership’ and do not want to be seen as adopting a style of contract management that could be deemed to be confrontational.

Within the public sector there would have been a number of contractual obligations. Certainly, updating the IT infrastructure is likely to be one of them. It isn’t difficult to find examples of IT changes being made and the client alleging that the new systems are not fit for purpose! How does this situation arise? Presumably, there would be a robust business case setting out the benefits and suitability of the new system. Presumably, the key stakeholders were involved in evaluating the business case and, presumably they signed off the new system? Presumably, there was an exhaustive systems’ testing programme and stringent acceptance process. If all this was in place how does anyone have a system that is not fit for purpose? Digging a little deeper, we may find a lack of IT expertise in the buying organisation and key decision makers being led by the nose by more astute It specialists.

Outsourcing and in-sourcing actions are emotive business issues. However, life carries on. It is without question that outsourcing can bring very positive benefits and service improvements. It can also seriously question the staffing levels used and, in some cases, the competence applied. The business risks abound and need an exhaustive process to identify the risks and to keep them under active review. Balanced business decisions are made on up-to-date, accurate management information. Decisiveness is a quality required to deal with any questionable situations. If you need help in assessing the risks we can assist and call on extensive experience in this field.