The Emergency Budget: What does it mean for outsourcing?

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The waiting is over. Tuesday’s Emergency budget announced by Chancellor George Osborne has for many consumers confirmed their worst fears: increased taxation and slashed public sector spending.

Most of us have been left reeling from the announcements that the VAT is set to increase to a whopping 20 per cent and cuts to unprotected government departments, excluding health and international aid, will amount to 25 per cent over four years. It’s not all doom and gloom for businesses however.

As the public sector shrinks as a proportion of GDP, the opportunity is ripe for private sector companies to fill the gaps. The welcome discipline to public sector spending will improve productivity and performance, and I firmly believe the outsourcing community is very well placed to help the government remove ‘waste and inefficiency’ to achieve its £6.2 billion of savings in 2010-11.

However, when it comes to how quickly outsourcing can deliver solutions, Government and public expectations must be managed, as ‘fast’ delivery may be a matter of semantics.

It usually takes 18 months to two years for outsourcing projects to deliver results and that’s even following the signing of the contracts. With such a long lead time, can we really expect the British public or the coalition Government’s critics to be this patient?

One possible solution is for the government to reconsider and modify its procurement rules, so that they more closely reflect the practices of the private sector.

Currently, public sector contracts take up to two years to be agreed and signed due to multiple bureaucratic layers. So, in practical terms, this could mean that it might take up to two years to agree a procurement contract and then a further two years before we start seeing the calculable returns from an outsourcing arrangement.

To further delay and complicate matters, for procurement contracts over £101, 323 – which basically applies to all procurement contracts nowadays – the contracts must be advertised in the EU’s Official Journal and procedural rules set down in the regulations must be followed.

Though the Official Journal makes the selection process transparent, it inevitably adds yet another layer to public sector procurement, not present in the private sector. Perhaps the Government could look to set up an independent organisation such as a quango more aligned to the private sector to streamline and expedite the process?

The cost of public sector procurement pulls strongly on the public purse strings. If the procurement rules were modified and the government reflected the practices of the private sector, the actual cost of procurement could be significantly driven down and the time to get the contracts through, and thus deliver results, would also be drastically reduced.

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