Outsourced and Business Services - Delivering More for Less 1

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1 Outsourced and Business Services - Deivering More for Less Outsourced and Business Services - Deivering More for Less 1

2 CONTENTS Foreword 3 Introduction 5 Executive summary 6 1. Benefits of outsourcing 9 2. Opportunities to extend competition Removing the barriers 20 References 23 2 Outsourced and Business Services - Deivering More for Less

3 FOREWORD Outsourced and Business Services - Deivering More for Less is being pubished at an important time for the industry and the country. This is the third in a series of reports pubished by the BSA which charts the scope and deveopment of the industry. Outsourcing has a ong history in both the private and pubic sectors. Its market has evoved and matured, making the UK a word eader. Yet the outsourced services industry remains an untapped resource in the batte to bring down the fisca deficit. The experience of the private sector is that year-on-year cuts of 5% cannot be achieved without radica structura change. Given the scae of the cuts set out in the government s recent spending review, it is cear that pubic services require more than just greater efficiency. They need continuous improvement, and this necessitates some eement of re-engineering. Outsourcing shoud be part of the answer. Outsourced service providers have a proven track record in heping successfu companies and government organisations achieve transformative change. They do this by investing in training and technoogy, utiising buidings more effectivey, joining up the deivery of services and modernising management techniques. Innovation often comes by seeing the probem through new eyes, and outsourced service providers are not subject to the same hierarchica and organisationa structures which can prevent the pubic sector from doing things differenty. The new coaition government agrees that fresh approaches are needed. Recent announcements on spending cuts have been accompanied by a greater wiingness to see pubic services deivered by a mixed market of providers. But if new providers are expected to fi gaps, the government needs to be much cearer about what it can and cannot provide itsef, and distinguish between essentia and discretionary services. Like a private company facing an outsourcing decision, the state shoud examine what its core functions are and what it needs to provide. New providers then need open and honest commitment from the government, and for there to be a sense of partnership. Outsourcing does not work as we as it can when pubic sector contract mangers fa back on the egaistic intricacies of the contract rather than acting ike ong-term partners. But if we can get this right, and bring together the commitment and expertise of pubic services with the customer accountabiity of the private sector, then we can achieve great things. Kevin Craven Chairman BSA - The Business Services Association Outsourced and Business Services - Deivering More for Less 3

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5 INTRODUCTION The outsourced and business services industry is one of the argest sectors in the UK. The BSA is the ony body dedicated to representing the industry as it operates across the private and pubic sectors. We promote the industry and the positive contribution it makes to the economy and society as a whoe. Three quarters of the industry s work is business to business, with the remaining quarter providing services to the pubic sector, athough the atter is the area which receives the most attention from poiticians and the media. The BSA s fu members are active in providing business and outsourced services in the UK, across Europe and around the word. They have a combined wordwide turnover of over 70 biion and empoy over two miion peope. In the UK the turnover is 17 biion with around 375,000 peope empoyed. Our associate members are professiona firms incuding awyers, accountants and consutants who advise the sector. The aim of this report is to set out the benefits the industry brings to its private and pubic cients in terms of improving standards, cutting costs, investing in training, commitment to socia responsibiity and energy efficiency. With these benefits in mind, the report then highights areas of pubic sector activity which coud benefit from the management and operationa techniques described. The fina section ooks at what the barriers are to operating in the pubic sector and recommends action to overcome them. In this prevaiing austerity, faiure to optimise the benefits of outsourcing is a mistake. So too is discussion of pubic sector reform which fais to recognise the potentia of this dynamic and mature service industry. The entire rationae of outsourcing is to perform a function in a better and more efficient way than a cient organisation coud do itsef. A competitive market to provide these functions means investment in innovation and training is fundamenta. This investment drives growth through the rest of the economy. As an industry, we are beyond the simpe dichotomy of pubic versus private provision. The goa shoud be to inject the best of the commercia word into the provision of pubic services - and vice versa. We are aso not naive to think that a outsourcing is a success. Carefu consideration needs to go in to writing a contract, seecting the best provider, and managing performance. It is in our interests as we as those of the end-user and the taxpayer that the cient - the commissioning body - is as effective as possibe. The risk in the current economic cimate is that cients forget the essons of the past and instead of contracting with ong-term vaue in mind, they contract on the basis of owest cost. Lowest cost does not aways mean best vaue and instead of more for ess, we risk ending up with ess for ess. The BSA beieves there is a significanty arger roe for the outsourced service sector to pay in creating a more efficient pubic sector. But to do this pubic sector commissioners must take a more commercia outook. Too often however overy compicated and poory managed procurement processes hamper suppiers abiity to bid for contracts. The ack of a eve paying fied between private sector and pubic sector bidders creates a competey unfair commercia environment and unreaistic and unsustainabe pension requirements are a significant deterrent to suppiers. As businesses BSA members are a significant part of corporate Britain. As such we woud be concerned by any move that woud make us ess domesticay or internationay competitive. Maintaining as stabe and competitive a rate of corporation tax as possibe must remain a priority for the government. In summary, the outsourced services industry is a UK success story. Outsourcing is not a magic buet to the UK s fisca chaenge, but the industry is part of the soution. Mark Fox Chief Executive BSA The Business Services Association Outsourced and Business Services - Deivering More for Less 5

6 EXECUTIVE SUMMARY Suppose the amount expended in the purchase of a given service to be a certain sum, and that an individua equay capabe of rendering this service shoud offer to render it at ess expense. Is there any good reason for refusing such an offer? - British phiosopher Jeremy Bentham ( ) 1 The outsourced and business services industry operates across the private and pubic sectors. Services incude back office functions, customer contact centres, catering, ceaning, security and pest contro. The sector aso provides pubic sector specific services ike socia housing maintenance and management, offender management, buiding and maintaining schoos, and managing defence estates. The industry has grown significanty over the ast few decades as organisations - both private and pubic - ook to focus on their core functions and et expert outsourced service providers deiver non-core functions. Of course, what is considered core and non-core is shifting over time. Services that were once considered absoutey core to an organisation s success, such as customer care, are now successfuy outsourced. The foowing key facts demonstrate the size and success of the industry: The UK is a word-eader in outsourcing, second ony to the US and home to amost a fifth of a outsourcing contracts Business services make the argest contribution to the economy of any sector, contributing neary 10% of tota UK Gross Vaue Added The sector empoys 1 in 7 workers The part of the industry which operates in the pubic sector is arge, representing about 6% of GDP and empoying 1.2 miion peope. The case studies contained in this report iustrate some of the reasons why the industry has become so successfu. They show how BSA members offer their cients measurabe improvements in service quaity and a guarantee that savings can be made year on year. This is backed up by evidence from a government-commissioned report which found that, on average, competition to provide pubic services generates cost savings of between 10-30% without reducing quaity. These achievements cannot be made if investment in the workforce is not the number one priority. This is a service industry and so depends on the quaity of its peope. It is often asserted that empoyees suffer when they are transferred from the pubic to the private sector - but the evidence just does not back this up. For instance, a Nationa Audit Office study of staff moving from the pubic to private sectors found that tota empoyment increased by 20% and the turnover of staff who transferred to the private sector was 7% a year compared to 12.4% average for the pubic sector as a whoe. Staff aso generay benefited in terms of pay from the shift to private empoyment. In addition, business services and outsourcing companies aways abide by empoyment aw and have honoured key government agreements to 6 Outsourced and Business Services - Deivering More for Less

7 ensure that current pubic sector empoyees are not disadvantaged when they transfer to the private sector, such as the TUPE, the Fair Dea and the Two-Tier Workforce Code. In today s business environment it takes more than just meeting the terms of a contract to become successfu. Businesses have to demonstrate how they are responsibe corporate citizens. The case studies in this report show how BSA members go above and beyond the contract - contributing to community goods and improving their own and their cients carbon footprints. Despite the benefits iustrated, two thirds of pubic services are sti deivered by the pubic sector. We beieve the government is missing out on huge opportunities to reduce its spending at the same time as improving standards. For exampe, in the heath sector ony 30% of anciary services are outsourced. The majority of the NHS insists on deivering its own ceaning, catering and buiding management services when surey its managers woud be better off concentrating on the core task at hand. The BSA has estimated that an easy way to knock 1 biion off the NHS budget - without compromising front-ine service deivery - woud be to subject the 70% of in-house support services to competitive pressure. The second section of this report sets further areas where we beieve there is great potentia and much more the market can achieve. However, if we want this force for transformation we need to change how contracts are awarded so that more companies bid for them, and to create new opportunities for companies to provide pubic services. Too often overy compicated and poory managed procurement processes hamper the abiity of suppiers to bid for contracts. We woud ike to see greater coordination of procurement through centra frameworks. This woud sti aow for oca commissioners to innovate but woud reduce the inconsistencies which add cost to the procurement process. In addition, the ack of a eve paying fied between pubic and private providers resuts in commerciay unviabe contracts and the strain of taking on huge pension iabiities acts as a significant deterrent to bid. The reforms we recommend in the third section of the report wi not ony assist BSA members but wi aow the government s vision of a mixed economy of providers to become a reaity. Sma companies, mutuas and co-operatives which are expected to enter the market wi aso benefit. Greater competition does not necessariy ead to adversity and we beieve that as trusted partners, BSA members can provide the expertise and capacity in this new andscape to the utimate benefit of the service user and the taxpayer. Outsourced and Business Services - Deivering More for Less 7

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9 1 Benefits of outsourcing Outsourcing is not a new management fad. It has a ong history going back to ancient times. 2 The first outsourcing in the UK we know of was 1,900 years ago when Britain was part of the Roman Empire. The Roman army initiay had to make or import its pottery. However, around AD100, the army in Dorset switched to using a oca manufacturer which had become capabe of producing pottery in the quantities and to the standards required. Equay, the use of private sector companies deivering pubic services is not new. In 1834, when a fire ravaged the Houses of Pariament, it was the men of a private company, the London Fire Engine Estabishment, who heroicay risked their ives and saved Westminster Ha. 3 And internationay, the UK is not unique. For instance, Fack provides around 60% of Denmark's fire services and 80% of its ambuance services, and has done since the 1920s. What we now think of as modern day outsourcing of pubic sector services began its ife under the banner of Compusive Competitive Tendering in the 1980s. However, the andscape has evoved consideraby since then - in terms of the types of services provided, the reationship between contractor and cient, and importanty, the quaity of services provided. A third of a pubic services are now deivered by the private sector. Most peope come into contact with the private sector providers of these services everyday without reaising it. Roads are maintained, rubbish bags are disposed of, prisoners are transported to new faciities, IT services operate in schoos, hospitas are ceaned and socia housing is managed. See Chart 1 for an exampe of the range of services provided by just one BSA member. Chart1: Enterprise - maintaining the infrastructure of the UK Socia Housing Maintenance and/or Government Housing Maintenanace Power Distribution Teecoms Performance Improvement Consutancy Street Lighting Graffiti Remova Property Maintenance Eectricity Sub-station Engineering & Design Streetscene & Environmenta Management Arboricuture Grounds and Parks Maintenance Refuse Coection Emergency Response and Contact Centre Highways Maintenance Communications Power Water Drainage HVAC Gas Underground Station Maintenance M&E Maintaining the infrastructure of the UK Outsourced and Business Services - Deivering More for Less 9

10 1 Benefits of outsourcing Box 1: Key facts about the business and outsourced service industry The UK is a word eader in outsourcing, second ony to the USA and home to amost a fifth of a outsourcing contracts. 4 82% of arge firms in Europe, Asia and North America have outsourced contracts. 5 Shares of British-quoted firms, after announcing outsourced deas, outperformed comparabe firms without such a dea by an average of 1.7% in the month after the announcement. 6 The overa professiona and business services sector, a vast amount of which is outsourced, now accounts for amost 20% in terms of both nationa output (GVA) and empoyment. 7 Professiona and business services account for amost 14% of UK exports, 8 and the UK is the second-argest exporter of business services after the USA. 9 The support services sector - which is a subsector of the business services industry and incudes services ike ceaning, catering and buiding management - was estimated to be worth more than 303 biion in 2007, with growth of 8% from The part of the industry which operates in the pubic sector is arge, representing about 6% of GDP and empoying 1.2m peope. 11 From 2007/8 to 2010/11 the industry deivering pubic services was estimated to have grown 6.3% compared to the economy as a whoe with growth sowing to 0.5% in In 2007, oca government spent 42 biion on externa contracts - over 40% of a its expenditure. 13 Pubic procurement costs 3,560 per person in Britain per year. 14 The industry is truy internationa. For exampe, one BSA member aone empoys over 380,000 staff to serve over 50 miion peope every day in 80 countries. BSA members range from operating entirey in pubic sector markets to 50-50% pubic and private to 100% private sector. Private sector cients incude banks, FTSE 100 companies, bue chips and hotes. Pubic sector cients incude No 10, the Cabinet Office, the Ministry of Defence, hospitas and schoos, oca authorities and the Highways Agency. The types of services provided in the pubic sector incude administration of wefare-to-work programmes; schoo buiding and maintenance; hospita ceaning, catering and portering; management of defence estates; instaation of new IT systems; construction of transport infrastructure; and the running of prisons and probation services. 10 Outsourced and Business Services - Deivering More for Less

11 Outsourcing is a we-estabished means of deivery. There are cear benefits in terms of cost savings and improving service quaity. There are obviousy risks too. Care needs to be taken by the cient over seecting the best provider and managing the contract. The BSA does not beieve that outsourcing is a magic buet to the country s probems. However, we do beieve the industry is part of the soution. This is because outsourced service providers aim for three things when working with cients - whether they are pubic or private sector cients. First, they offer measureabe improvements in the quaity of service provided. Writing performance targets into a contract is a powerfu incentive for raising standards. This is especiay true for pubic sector cients who have not previousy measured what they do. Second, savings are guaranteed. The cient is promised a reduction in their operating costs of 20, 30, sometimes even 50%. The third benefit goes deeper and invoves making the cient s operations more effective in the ong term as outdated working practices are reformed. If any of these promised benefits are not achieved, the contractor can be sacked. The foowing sections ook at how BSA members have: Improved service standards and reduced costs Improved empoyee conditions Gone above and beyond the terms of the contract. Vaue for money - improving standards and reducing costs The most comprehensive review of private and vountary sector providers deivering pubic services was the 2008 governmentcommissioned Juius Review. It found that shifting pubic services into a competitive environment creates cost savings for the taxpayer of around 10 to 30% with service quaity staying the same or improving. 15 The Serco Institute reviewed 198 government and academic studies spanning 30 years, 12 countries and five sectors - defence support, hospita services, prisons management, municipa services and refuse coection. The evidence showed that opening-up pubic service monopoies to competition can cut costs by up to 30% - and with no sustained evidence that efficiencies are achieved at the expense of quaity. Perhaps most significanty, experience shows that substantia savings are avaiabe to pubic and private sector providers aike: it is competition, or the threat of competition, which drives vaue-for-money improvements. 16 Case studies - improving standards Capita took on the NHS Choices website in The aim of the website is to empower and inform peope to make the right heath decisions. This in turn reduces the burden on the NHS. The first task for Capita was to increase visitors to the site. The target of 7 miion visits per month by 2011 ooked chaenging but Capita achieved its target two years eary, doubing visits within 12 months. The target for 2011 is 11.7 miion per month. To do this the website needs continuous improvement. In addition, the Department of Heath is saving money as Capita eiminates dupication of effort esewhere by providing syndicated content for NHS trusts oca websites. NHS Choices is heping to make heathcare more accessibe and patient-centred. The fow is two-way as patients can rate their experiences on the website. As we as giving patients more choice, the service gives them a voice. OCS pays an essentia roe at the Port of Dover in ensuring passenger and freight vehices quicky and safey board and disembark ferries at the port. It was seected as a provider after the Port decided to stop providing andside services itsef. OCS has worked in the transport sector for over 40 years and has used this experience to buid on the trust and reputation the company has in the market. Port of Dover chief executive, Bob Godfied expained the change; The withdrawa of the port from directy providing these services and the introduction of competition within this market now provides choice and fexibiity to our customers and enabes them to more directy contro the cost of their andside provision in these difficut times. Amey provides and maintains a wordwide feet of Engineer Construction Pant and Rough Terrain Mechanica handing equipment for the British Armed Forces. This equipment is essentia to maintaining capabiity during operations. Better feet management has reduced costs by cutting the number of that feet by 1,800 vehices. However, through an innovative process known as Whoe Feet Management, Amey has significanty increased equipment avaiabiity to over 90%. Sodexo s work maintaining Fife Counci s schoo estate resuted in a vast improvement in the quaity of service provision. Rector of Queen Anne High Schoo, David Meek, said: The quaity of work done by Sodexo in maintaining the faciities at the schoo has far exceeded my expectation. It is an absoute deight to enjoy the fruits of their abour: we can come to schoo knowing it wi be fuy accessibe; cean and even, when the need arises, snow free. It is cear that as a company they want to provide a first cass service and that is certainy what we receive. In oca government, the use of competition accounted for a third of a savings made in corporate services (an estimated 80 miion) over the two-year period 2004/5 to 2005/6. 17 Outsourced and Business Services - Deivering More for Less 11

12 1 Benefits of outsourcing Babcock is responsibe for buiding and maintaining the accommodation for the armed forces across the UK, with the construction of some 15,000 new bedspaces. Babcock s joint venture partnership has seen a friendy and coegiate campus stye viage buit and modernised, improving the quaity of ife of miitary personne. Through its Debut Joint Venture, Babcock has aso constructed new houses in North Devon. Major Nick Underwood RM, Officer Commanding Base Squadron Rm Chivenor, says: These houses have been buit to a very high standard. Ecovert FM provides faciities management services to King s Coege London. Over 5,000 students and staff benefit from Ecovert FM s soid reationship with the coege. Service standards are effectivey guaranteed by 80 Key Performance Indicators. This enabes King s to focus on what it does best: word-cass academic deivery. Bafour Beatty WorkPace working with its suppy chain partners has introduced a mai scanning and indexing service for the Pensions, Disabiity and Carers Service: an agency of the Department of Work and Pensions. The innovative approach, using the atest technoogy and streamining processes, has greaty improved the post to desk time and the accuracy of document storage. This has meant the agency has increased its customer response time and dramaticay reduced process costs. ARAMARK was seected by NAAFI, HM Forces officia trading partner, to operate its remaining UK retai business. This incuded the transfer to ARAMARK of the 3 NAAFI shops and the bar faciities at RAF Brize Norton. Brize Norton is the argest station in the Roya Airforce; home to 3,900 miitary personne and 600 civiians. It is the UK hub for depoyment of personne on overseas operations. ARAMARK worked directy with the RAF to improve the termina faciities. Combining commercia experience with a focus on standards has resuted in a reviva of the service. As Ft Lt Oivia Stee, OC Passenger Pans, said at the time: The café in the genera ounge and the new addition of the kiosk in the departure ounge has made a dramatic difference to the comfort of our passengers and their famiies and friends. Case studies - saving money Enterprise works in partnership with Liverpoo City Counci providing a range of services from waste and recycing coection to highways maintenance. The residents of Liverpoo have seen huge improvements in service deivery - with a 16% improvement in street ceaniness - and the Counci has achieved substantia cost savings - 7 miion in one year. Interserve s partnership with the London Borough of Croydon to deiver the fu range of faciities management services brings together 50 different singe-service providers. By channeing oca providers through Interserve, Croydon saved 4 miion over two years (20%). Interserve aso chaenged the status quo - introducing new mairoom equipment and cutting the number of invoices processed each year from 28,000 to 12. Tony Middeton, Divisiona Director, Asset and Faciities Manager at London Borough of Croydon said: Transferring faciities management responsibiities to Interserve has aowed the Counci to take a more effective and strategic overview of its services and consider how best to deveop them in the next few years. Capita works in partnership with Birmingham City Counci to provide their information and communications technoogy services. The improved communications infrastructure has saved the Counci 350,000 each year and network management costs have faen by 40% per year. Babcock saved its cient, Defence Equipment and Support, 5 miion per year by integrating the soft services required under the Bristo and Bath Tota Faciities Management contract in to the South West Regiona Prime Contract. Amey provides faciities management at Ministry of Defence s headquarters - such as the management of correspondence, onine records management, ceaning and grounds maintenance - which has resuted in annua cost savings of 10 miion. Ecovert FM provides faciities management services such as hepdesk management and ceaning for the Cabinet Office which has resuted in 6 miion annua savings since MITIE heped Loyds Banking Group to save 42 miion over five years by integrating their ceaning services with just one suppier across their entire UK portfoio. Compass deivers faciities management services in the NHS. Their soft faciities management work (patient catering, ceaning, waste management, inen services and hepdesk management) deivers savings of 794 per bed. Ceaning 73 mies of hospita corridors each day, Compass has innovated to deiver a better service at ower cost. For exampe, introducing microfibre mops saves 270 hours per week. Bafour Beatty WorkPace provides faciities management and other services to Roya Mai. The joint venture has achieved 150 miion savings for Roya Mai over the seven years of the contract. 12 Outsourced and Business Services - Deivering More for Less

13 Workforce - maintaining and improving working conditions It is often assumed that when empoyees are outsourced to a private sector empoyer their terms and conditions are reduced. However, private sector companies are obiged to meet TUPE (Transfer of Undertakings (Protection of Empoyment)) reguations and the standards of the government s 1999 Fair Dea. TUPE means terms and conditions must be the same or better than they were under pubic sector empoyment. The Fair Dea goes further than TUPE and asserts that the pension scheme offered by the new private sector empoyer must be broady comparabe to that offered to the staff member by their pubic sector empoyer. In addition to the hard question of cash, evidence from our members, as iustrated in the foowing case studies, strongy suggests that empoyees benefit in terms of career progression and training when they are transferred. Experienced staff who have frequenty been constrained by bureaucracy and infexibe working practices are often empowered by private sector management techniques. A Serco Institute survey found that 86% of former pubic sector managers now working for a private sector contractor agreed or strongy agreed with the statement that I have more freedom to experiment and innovate than I woud have as a pubic sector empoyee. 19 Outsourced service providers are aso accused of making profit by cutting jobs. The evidence, however, does not back this up. For exampe, a 2008 Nationa Audit Office study ooked at the terms and conditions of staff who moved from the pubic to private sectors. 18 It found that tota empoyment increased by 20% and the turnover of staff who transferred to the private sector was 7% a year compared to an average of 12.4% for the pubic sector as a whoe. Staff aso generay benefited in terms of pay from the shift to private empoyment. Outsourced and Business Services - Deivering More for Less 13

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15 Case studies - investing in peope OCS provides soft faciities management services to Lymington New Forest Hospita, incuding ceaners, caterers, porters and housekeepers. Staff here were the first to gain from a new training programme aimed at raising skis in pubic services. A 53 empoyees working for OCS at the hospita were awarded their NVQ eve 2 in customer service. Capita took on the chaenge of transforming Southampton City Counci s back office and customer services in counci empoyees were subsequenty transferred to Capita s workforce. In addition to significant cost savings miion measured over a tenyear period - and a great improvement in services, workforce satisfaction is high. This is demonstrated by exceptionay ow attrition and sickness rates at 3% and 1.7% respectivey. In addition, tota empoyment actuay increased as new services were added into the contract. Rentoki Initia has ong had a focus on skis training as critica to deivering customer service, as we as to underpinning its roe as a major empoyer. Under the Train to Gain initiative, 419 Rentoki Initia empoyees achieved an NVQ, an increase of 25% on the previous year. In 2009, the Initia Faciities Services Learning and Deveopment team deivered 4,661 days of training across the businesses, an increase of 55% on the previous year. ARAMARK provides services at Marchwood miitary port, incuding catering services for 480 miitary personne. Eighteen miitary chefs are empoyed within the contract, working aongside four civiian caterers. The chefs have benefited from a targeted schedue deivering appropriate technica and food safety training. Participating in training together, throughout the ife of a contract, not ony ensures that any misconceptions about each other are erased and a true team spirit deveops, but deivers a new range of commercia skis and knowedge to the miitary. This heps them to understand the retai environment and deveop technica skis that wi enhance their future empoyabiity when they eave the Service. Babcock recenty trained 200 staff as part of their NVQ programme. In addition, Babcock s in-house training team has received externa accreditation for deivery of heath and safety training. Kier has a partnership with Stoke-on-Trent City Counci to deiver a repairs and maintenance service to the city s 20,000 socia homes and 500 municipa buidings. A month in advance of the TUPE transfer, Kier hed a day-ong session where staff coud meet the Kier team. The day incuded sessions with shop stewards from other Kier contracts so staff coud ask questions without Kier management present. Face-to-face interviews were aso hed at a eves within the workforce to estabish what improvements staff wanted to make. Enterprise s partnership with Liverpoo City Counci invests in skis deveopment programmes for its entire workforce. A recent programme within street ceaning saw 26 ceaners progress to achieve NVQ eves 2-4 certification in waste management operations. This training was vountary and avaiabe to a interested empoyees. Persona testimonies from empoyees who joined the EnterpriseLiverpoo partnership Dave McGuire Dave was transferred to the partnership in 2002 from his previous post as a highways inspector. He was promoted three years ater to supervise tweve coeagues, then again in 2006 when he was appointed Streetworks Manager. EnterpriseLiverpoo has invested heaviy in ensuring that we are a equipped with the right skis to deiver for Liverpoo, he said. Nicoa McCabe Nicoa joined the partnership in 2002 as an administrative support officer and is now commercia support manager. EnterpriseLiverpoo introduced commercia systems and procedures which have achieved budget management and contro. We now know at any time how much is being spent and on what. This has heped us deiver rea efficiency for the city. Mike Smith Since joining the partnership, Mike has been promoted from highways manager to operations manager for highways and environment services. He says EnterpriseLiverpoo has made an enormous contribution to improving the environment of the city. Investment in peope and resources and a better understanding of how services shoud be deivered has enabed Liverpoo to become one of the best maintained cities in the country. Outsourced and Business Services - Deivering More for Less 15

16 1 Benefits of outsourcing Going above and beyond - heping to buid stronger communities There are numerous ways in which private sector organisations can contribute to community goods - outcomes which benefit civi society in a nonmonetary manner, or go beyond the terms of the contract to deiver extra. In addition, the industry is at the forefront of energy efficiency innovation - reducing its own and its cients carbon footprints. Case studies - community action Lancaster Ceaning, part of Rentoki Initia, works in partnership with Tomorrow s Peope, whose objective is to support the ongterm unempoyed of London. The scheme offers practica training and support to those who unti now have thought they were unabe to get empoyment. Over a period of three months, its own Academy has successfuy trained 175 ong-term unempoyed peope and provided empoyment within its own contracts to 45 of the new trainees, with the remainder on a waiting ist for when work is avaiabe. Sodexo has an outcomes-based contract to run HMP Peterborough - a category B prison. The contract is based on a socia bond - the first of its kind - whereby private investors are paid according to the reduction of reoffending rates when prisoners are reeased. To deiver the contract effectivey Sodexo has formed a partnership with oca vountary groups who deiver community care services. This benefits the government through ower re-offending rates and abrogation of financia risk. The vountary sector benefits as it is gets the resources it needs. Pinnace offers services that ink socia housing management with wider community concerns. For exampe, on the Churchi Gardens estate in Westminster, Pinnace took over management of the oca youth cub and introduced their charity Eevate to increase the ife chances of young peope in the oca area. This has ed to an independenty verified reduction in anti-socia behaviour which benefits the oca community and reduces costs further. 20 Enterprise estabished the Enterprise Foundation which is a notfor-profit company dedicated to improving the quaity of ife for residents and promoting community cohesion. Initiatives incude training and educating programmes for young peope or those in hard to reach groups. For exampe, In the London Borough of Barking and Dagenham the Foundation worked with the Counci, the Job Centre and oca coege to estabish a work and training programme for young, ong-term unempoyed peope in the Borough. Foowing the programme the participants were assisted with finding jobs with Enterprise or other oca empoyers. Babcock has undertaken around 40 community day projects providing 1,000 empoyees working around 8,000 hours in support of community causes such as hospice centres for the terminay i, community centres and in support of protected and and species. Capita s abiity to engage with the community is demonstrated by its success in running the government-funded Home Access programme since The scheme set out to reach up to 270,000 ow income househods and provide computers and connectivity to famiies so that chidren are abe to enhance their earning at home. The chaenge was to engage a hard-to-reach audience without going direct to schoos. Through innovative marketing, engaging with charities and support groups, setting up a dedicated hepine and an accessibe appication process, Capita has ensured that 258,000 eigibe famiies have now received their grant. Bafour Beatty WorkPace works in partnership with North East Linconshire Counci to regenerate and transform the area. This brings together a broad range of counci services into a singe outcomesbased agreement aigned to the counci s strategic objectives. The benefits of this unique reationship are aready being seen with deveopment initiatives such as proposas to turn the region into a renewabe energies hub, with the possibiity of estabishing a centre of exceence, combined with a fu-scae regeneration of run-down neighbourhoods. Councior John Fenty reacted by saying: "Some of us thought we shoud have carried on with the way things were and done it in-house. But it seems ike they have taken the bu by the horns and I am deighted with what I have heard of the progress so far. Councior Steve Norton said I think we're on the cusp of something magnificent that wi create a reversa in the fortunes of Grimsby but it is important not to forget we wi aso need a great dea of investment " which inks to another outcome which Bafour Beatty have committed to achieve - raising the necessary investment. Case studies - energy efficiency MITIE works with North Somerset Counci to provide maintenance and energy efficiency services to its 12 secondary schoos, 70 primary schoos and many other pubic buidings. It heped North Somerset s schoos reduce their spending on energy by 15% using its CarbonCare services which offer a fu range of integrated services that hep organisations manage down their energy use and carbon footprint. Not ony has MITIE s work ed to energy consumption faing by a third and savings of 11,000 across North Somerset, but schoo chidren are aso benefiting through MITIE s seminars on environmenta awareness. Babcock through its joint venture, Debut Services, has worked with the Roya Navy to reduce their energy usage across ten nava estabishments in the South West and save money. The innovative scheme used advanced computer software to reduce the Navy s energy bi by more than 200,000. In addition, Babcock s professiona energy advisors have been engaged with the Army over the ast 5 years. 10 miion has so far been saved through a variety of energy efficient initiatives. 16 Outsourced and Business Services - Deivering More for Less

17 Morrison works with oca authorities to deiver the Community Energy Saving Programme scheme which offers grants - drawn from evies on energy companies - to retrofit socia housing with more energy efficient technoogies. The Cearsprings Group, a provider of accommodation services to the pubic sector, was recognised by the Home Office with a Suppier Vaue and Innovation Award in This was for significant investment outside their contractua requirements to reduce the Home Office s carbon footprint through innovative energy management in their properties Strand, part of the OCS Group, provides ceaning services to Hinxton Ha - a subsidiary of the Wecome Trust, one of the biggest medica funding charities in the word. After taking on responsibiity for waste management, OCS reduced the amount going to andfi from more than two thirds to under a haf - 19% beow the nationa average for UK businesses. Furthermore, Hinxton Ha s on-site crèche has become a hub of environmenta education - chidren are taught about the importance of recycing right from the start. Bafour Beatty Workpace achieved a 23.7% reduction in energy consumption across 99 schoos for Stoke-on-Trent City Counci and reduced consumption costs by approximatey 0.4 miion per year. A partnership approach engaging both teachers and pupis aike and investment in the atest technoogy was critica to securing the achievement, which was recognised with a Green Appe Environment Award. The Award s Campaign Manager Mark Woens, said: To show continued interest in environmenta issues during the current financia cimate shows great foresight and they deserve the recognition of being Green Appe Award winners. To then go further and become Green Heroes is an even boder statement of environmenta intent, and organisations that go the extra mie and become Green Heroes are demonstrating a serious commitment to the word around them. They invest in a better future for us a and deserve to be recognised for their efforts. Initia Industria Services, part of Rentoki Initia, worked in partnership with Northumbria Recycing Ltd to deveop a groundbreaking waste picking faciity. The innovation has been used for IIS s cient Nissan at their Sunderand car production pant. Nissan s annua waste recovery of recycabe materias has since increased by 30% and waste disposa cost has been reduced by 70,000 per year. Contract Controer, John Bearby, commented: We are thried with the resuts that have been achieved to date and the hard work that has been put in by our waste management partners. The initiative compies with Nissan s Green 2010 Program, our goba campaign to reduce manufacturing emissions by 7% by 2010, and the faciity is beieved to be unique in the UK motor industry. Eden Foodservice, part of Rentoki Initia, has worked with the Ise of Angesey County Counci not ony to bring heathier meas to schoochidren but aso to boost the oca economy and hep the environment. A third of its produce is now sourced ocay, incuding meat, fruit, vegetabes, mik, bread and minera water. Sodexo aong with the Ministry of Defence and Bright Management Associates, were recognised by the Nationa Recycing Committee as the Best Partnership, having achieved a 79% waste recycing rate at a Ministry of Defence sites in London. Outsourced and Business Services - Deivering More for Less 17

18 2 Opportunities to extend competition Pubic services are deivered by a mix of providers but twothirds are sti provided by the pubic sector 21. Heath and education in particuar are run as near monopoistic services. There is enough evidence avaiabe now to show that a ack of competitive pressure means these pubic sector providers are not aways the most efficient providers, often producing ower output at higher cost than woud be achieved in a competitive market. The 2010 Spending Review confirmed the government s commitment to increase diversity of provision in the deivery of pubic services. 22 However, it imited these ambitions and the most radica reform to specific areas such as youth services, eary years and court and tribuna services. The BSA beieves the government is missing out on some huge opportunities to make savings whie improving standards. An anaysis of pubic expenditure suggests that a further biion of annua spend on pubic services coud be opened to competition. 23 The savings made through appying competition to pubic sector deivery have been estimated to be between 10 and 30%. 24 Based on this, savings coud be as much as 45 biion. An exampe of a missed opportunity can be found in the heath sector where ony 30% of support services are currenty outsourced. These services incude ceaning, catering, portering, buiding maintenance and security services. BSA members make cost savings of, on average, 15% per contract in the NHS. Exposing the remaining 70% of services to competition coud achieve savings of 1 biion per year. Athough this is ony 1% of the entire NHS budget it coud be done easiy and without impacting the front ine There are approximatey 492,000 UK civi servants. These are empoyees who work in centra government departments. They are not the pubic sector staff who we associate with front-ine deivery - such as teachers, nurses and poice. Ony 5.3% of those civi servants are invoved in poicy deveopment (something the BSA beieves is a core function of the state). More than two thirds (71.3%) work in an operationa deivery roe - which incudes ca centre staff and persona advisors. We refer to this as midde-office (as opposed to front or back-office). Midde-office can mean providing services direct to the pubic, but it can aso invove making other front ine provision, such as cinica services, more effective, for exampe, improving the speed at which a patient receives different stages of care. We beieve there is a huge opportunity here to re-evauate the core roe of the state and to refocus on that roe whie making the support functions as effective as possibe. The outsourcing of these functions transfers staff into the private sector, reducing the size of the state whie not impacting the front ine. Our members estimate that typica savings when these services are outsourced are in the region of 30-40%, with exceptiona contracts saving 50%. We cacuate that a third of those 492,000 roes can be effectivey outsourced using current poicy and contractua mechanisms. This therefore represents significant opportunity to make savings. 2. Simiary in oca government, amost every oca authority has its own ca centres, IT services and counci tax coection, when these services coud easiy be shared. Shared services have traditionay been back-office functions such as payro and HR but the government shoud aso ook at how these midde-office services can be streamined. In the provision of socia housing management, ony 2% is currenty outsourced to the private sector. The companies in this sector have a proven track record of deivering services at ower cost than either oca authorities or socia andords whie being contracted to provide services to a higher standard. Using the savings aready achieved through outsourcing as a benchmark, it is estimated that 1.5 biion per year coud be saved if this market was opened-up to private sector competition. 25 The current financia situation tes us that more of the same wi not do. In addition to the two areas mentioned above, the foowing ist summarises where the market can be extended The government coud be much more creative about how it currenty outsources administrative functions, as there are many ways in which this can be broadened and deepened. Taking a government buiding as an exampe, the incusion of property services with the current outsourcing of faciities management means that providers can view the entire running costs of the buiding, making them easier to reduce. Buidings are responsibe for considerabe energy usage. Incuding the outsourcing of energy management within a faciity management contract can reduce the risk that pubic sector assets, such as schoos and hospitas, incur penaties for carbon emissions. 18 Outsourced and Business Services - Deivering More for Less

19 Pubic sector cients can transfer the risk of meeting carbon reduction targets to the provider who are in turn incentivised to reduce energy and utiity bis. In the education sector, academies and free schoos are high up the agenda, but Loca Education Authority functions shoud aso be ooked at. Currenty the market is ony used as a ast measure for faiing authorities. But what about those LEAs deivering reasonabe education outcomes but spending too much doing it? There are a number of oca services that are provided in-house and rarey tested for vaue through competition. For exampe, street ceaning, town panning, buiding contro, foster care and adoption services. For instance, approximatey 32% of oca authority street ceaning is outsourced, 38% of househod waste coection, and 0% of ibraries (as of 2007). 27 Without chaenging the deivery of these services through contestabiity and an open market it is impossibe to know whether they are achieving vaue for money or not. It is important to note we are not advocating the diminution of service provision, merey that services are provided more efficienty. In the provision of heathcare there are a number of providers, but the current non-nhs market share is sti ess than 5%. 28 There are many exampes of front ine heath services that coud be outsourced, such as community heath services, outpatients management, bood/tissue typing, medica records management and distribution, and homecare. 10. has focussed on inputs - namey, the number of peope in prison - and faied to focus on outcomes - the reduction of reoffending. BSA members woud be keen to discuss how contracts coud be designed to bring down reoffending on the proviso that no outcome means no payment. For instance, if Sodexo s success in reducing re-offending rates were repicated across the prison estate, 6p coud be taken off income tax. This has been achieved not just by bunt cost cutting by through innovation. 30 The Spending Review agreed probation is an area that coud benefit from more innovative contracting techniques but the government must avoid using private sector capabiity in a piecemea way. The greatest benefits in terms of innovation and efficiency wi be achieved through ong-term, strategic partnering. Contestabiity coud be extended to commissioning bodies themseves. One exampe is the Learning Trust, a not-for-profit company which commissions education services in Hackney. The trust has a 10-year contract with Hackney Counci to run its compete education portfoio and repaces the previous oca education authority. Another exampe is the BBC which recenty sourced a singe provider to manage its third party agencies. In the first six months aone this resuted in 1.1 miion savings and they are now working towards a further 10% cost savings In poicing, support services and non-core activity coud be outsourced to free up officers time to focus on the kind of frontine poicing so desired by the pubic. A back office functions - excuding the work of frontine officers, but incuding activities such as forensics - shoud be considered for outsourcing. 9. In the crimina justice system outsourcing coud extend to transcription of interviews, overseeing suspects in custody, forensics and the deivery of court services. Probation and rehabiitation are further areas which coud be incuded. Apart from its impact on victims, it is worth noting that the biggest driver of costs in the pena system is the reoffending rate, which currenty stands at 65%. 29 One way to tacke this is to incentivise outsourced service providers to rehabiitate ex-offenders through socia and empoyment programmes. For too ong the system Outsourced and Business Services - Deivering More for Less 19