How can the public sector become a more intelligent customer of ...

All Party Parliamentary Group on 

Outsourcing and Shared Services 

How can the public sector become a more 

intelligent customer of outsourcing and 

shared services? 

A report from the All Party Group on Outsourcing and Shared 

Services 

OCTOBER 2012 

1



FOREWORD 

The All Party Group on Outsourcing and 

Shared Services was set up in July 2011 with 

the aim to raise awareness of the benefits and 

best practices of the outsourcing and shared 

services industries; address the issues that 

face the industry today; and, to promote 

dialogue and understanding between industry 

representatives and Members of Parliament. 

Outsourcing represents approximately 8% of 

the UK economy 1 with approximately 40% of 

contracts coming from the public sector. But 

public sector outsourcing contracts have 

commonly been the focus of criticism for 

failing to deliver on time and achieve stated 

savings, for the lack of due diligence by either 

or both the customer and supplier, and for 

sub-par contract management arrangements 

by either or both parties. 

The guiding principle behind this report, 

however, and one recognised by the Group, is 

that outsourcing, when delivered well, has an 

important role to play in the Government’s 

plan for deficit reduction, and can make the 

vital savings that Government needs. When 

Ian Watmore, former Chief Operating Officer 

at the Cabinet Office, addressed the Group in 

November 2011, he said that outsourcing and 

shared services were “at the heart of the 

efficiency and reform agenda.” 

We hope that the recommendations in this 

report will provide insight into the industry and 

inform best practice in public sector 

outsourcing in the future. I would like to thank 

everyone who submitted evidence to the 

Group, the Group’s members and the National 

Outsourcing Association who covered the 

costs of the report. 

Bob Blackman MP, Chair 

OCTOBER 2012 

HOW THE INQUIRY WAS 

ORGANISED 

1 Oxford Economics for the Business Services Association, April 2011 

The Group acknowledges that there are 

many competing views of what counts 

as outsourced and shared services. For 

simplicity, the Group took an outsourced 

or shared service to be a service or 

services supplied by a third party. 

In compiling the evidence, the Group 

aimed to draw out common themes from 

all the contributions and testimonials 

received, and we hope that the resulting 

recommendations have a wide 

application to all public sector contracts. 

The report comprises of findings from 

two evidence sessions in the House of 

Commons with witnesses from 

Whitehall, Local Government and 

industry. The Group also ran a 

consultation style process between July 

and October 2011, where members of 

the outsourcing industry and public 

sector bodies that use outsourcing and 

shared services were invited to submit 

written evidence to the Group and 

examples of best practice. The 

consultation process ended with two 

industry roundtable discussions, 

facilitated by the National Outsourcing 

Association, which aimed at formulating 

some guidelines for action. 

The report is arranged into four sections: 

addressing the skills deficit; true 

partnership working; outcomes-based 

solutions; and the future of outsourcing 

and shared services in the public sector. 

2



CONTENTS 

Recommendations in full Pg. 4 

Addressing the skills deficit Pgs. 5-6 

True partnership working Pgs. 6-8 

Outcomes-based solutions Pgs. 9-10 

Future of outsourcing and shared services in the public sector Pgs 10 

Appendix A Outsourcing in the UK Pg. 11 

Appendix B Written evidence Pg. 12 

3



RECOMMENDATIONS IN PRIORITY ORDER 

The Group would like to see the following recommendations implemented by Government 

and suppliers within an 18 month timeframe: 

1. Government should aim to act as a better educated commissioner of 

services. 

2. Clients should ensure that business objectives are clearly and simply 

stated from early on in the procurement process, and shared by all 

parties. If business objectives change in the near to long term, the 

contract should give the supplier the ability to make reasonable 

adjustments to service delivery. 

3. Clients should place more importance on outcomes, rather than 

processes, and ensure that outcomes are always clearly stipulated in 

contracts. 

4. Where possible, social outcomes should be articulated in contracts 

and the benefits of those social outcomes for the general public 

should be celebrated when achieved. 

5. Outsourcing and shared services contracts should, where 

appropriate, make budgetary provisions for suppliers to offer training 

and education for clients as part of the services package. 

6. Early and more flexible engagement is a desirable way of aligning the 

interests of the supplier and the customer. Both suppliers and 

customers need more clarity on how they should conduct these preprocurement 

conversations to mutual benefit. 

7. Clients should standardise service specifications where possible so 

that other potential participants within the sector can follow a 

successful model. It is preferable to maximise the commonality that 

exists between bodies rather than demand unnecessary individual 

bespoke services. 

8. It is critical for newly created arm’s length bodies to review and 

adopt pre-existing successful service models rather than necessarily 

constructing their own systems from scratch. 

9. Government should ensure that there is a robust and effective device 

through which best practice guidance can be communicated to 

public sector procurement teams. 

10. Both Government and suppliers need to educate their employees so 

they clearly understand the benefits of outsourcing and that they can 

act as partners to achieve mutually positive outcomes. 

4



1. ADDRESSING THE SKILLS DEFICIT 

A repeated criticism levelled against government outsourcing projects, particularly those at 

the larger end of the scale, has been that the people who commission the projects lack the 

commercial expertise and nous to be intelligent buyers, and the people who eventually 

manage or lead the project similarly lack the necessary skills to do so. This skills deficit and 

lack of leadership culture has been acknowledged as a key cause for failure in many projects 

in recent reports by the Public Administration Select Committee (PASC) on Government and 

IT and the National Audit Office on Shared Services. 

The 2011 PASC report on Government and IT for instance found that: “Managing suppliers is 

as important as deciding who to contract with in the first place. To be able to perform both of 

these functions government needs the capacity to act as an intelligent customer. This 

involves having a small group within government with the skills to both procure and manage a 

contract in partnership with its suppliers. Currently the Government seems unable to strike the 

right balance between allowing contractors enough freedom to operate and ensuring there 

are appropriate controls and monitoring in-house. The Government needs to develop the 

skills necessary to fill this gap. This should also involve recruiting more IT professionals with 

experience of the SME sector to help deliver the objective of greater SME involvement 2 .” 

According to Ian Watmore, former Chief Operating Officer at the Cabinet Office, in his 

evidence to the Select Committee, Government had, "…Either abdicated, giving it all away, 

or…retained an army, which has just added to cost and bureaucracy on both sides." He 

suggested that the government needed a, "Smaller intelligent group that can procure and 

manage a contract in partnership, and hold them to account when they need to, but help them 

fix things when they need to as well." He said that this was a difficult skill set to find but that 

the current Government was "buying it in". 

A similar view also emerged from the written evidence that the Group collected. Many 

suppliers echoed their frustration that they were not dealing with public sector staff with a high 

enough level of expertise and skills. Others provided more specific examples of things going 

wrong in-house: 

Allan Robertson, former president of the Chartered Institute for Purchasing and former board 

member and Chief Officer to several Government departments, put some poor buying down 

to lack of training and misunderstanding of how to operate under procurement regulations: 

“With fragmented buying there is difficulty in justifying staff gaining market and product 

expertise as any one organisation may not be able to justify the training of expert staff…The 

rules under which public sector procurement staff operate, both under standing orders if a 

local authority, and also under EU Regulations inhibit the actions and innovativeness of the 

buyer... EU rules need to be followed but they do allow considerable flexibility on such 

aspects as negotiation if they are initially spelt out in the tender. Many buyers I have met do 

not realise they can negotiate or are unwilling to do so.” 

Robertson went on to advocate: “…Streamlining and co-ordinating the buying organisations 

within the public sector in central and local government ensuring they are involved with 

projects from the outset, raising the profile and status of procurement staff, enforcing the 

policy and procedures and improving the expertise of staff employed.” 

A position paper submitted by Olswang, procurement law specialists, also highlighted 

regulatory issues: “…The regulatory regime is not as inflexible from a commercial perspective 

as is commonly made out by the press and others. More often that not, restrictions arise 

because those who interpret the rules in central government either adopt an overly restrictive 

2 Government and IT- "A Recipe For Rip-Offs": Time For A New Approach, Public Administration Select Committee, 

28 th July 2011 

5



approach – for fear of European Commission infringement proceedings against the UK – or 

simply do not provide guidance on an issue and thus leave small, less expert, individual 

public authorities to find their own (inevitably risk adverse) way through the Regulations.” 

Olswang said that the UK public authorities are out of step when it comes to interpretation of 

the EU Public Procurement Directive in comparison to other EU member states such as 

Germany - who are more confident and relaxed in their approach. A similar confidence, they 

said, could help cut UK procurement red tape. 

CapGemini drew attention to the lack of sophistication when it came to negotiating contract 

terms: “We have seen clients delaying the start of key money-saving projects over small 

pricing queries, the value of which are dwarfed by the lost savings due to the delay.” They 

found that one of the blockers to a successful negotiation was when buyers concentrated on 

‘price’ rather than ‘value’. They suggest that value for money measures should be built into an 

arrangement, and clients should maintain a value register through the life of a contract. 

With the changes to commissioning public services underway, and the willingness of 

government to open up and promote new models of service delivery and widen the pool of 

potential suppliers, the need for in-house skills will grow ever more important and the 

Government will need innovative and skilled managers to manage these changes. A recently 

published report by totaljobs.com 3 , which questioned 100 senior managers across Local and 

Central Government, showed that a lack of expertise is already harming the sector's ability to 

manage contracts. Over half (55%) the decision-makers who responded identified the need 

for improved project management skills, and a third admitted a lack of skills was the key 

reason for cancelling outsourcing contracts in 2011. The report proposes the idea of a 

rightsourcing advisory group to oversee a programme of work to improve the skills needed for 

delivering public services. While admirable in its intention, the All Party Group wonders 

whether such a group can exist in times of straitened finances, and alongside the closure of 

the public sector’s training school – the National School of Government. Certainly, skills 

education needs to come from somewhere and this will be a combination of intelligent 

recruitment from the private sector and additional training for retained staff. One way to 

achieve the training could be for the supplier to offer an education service as part of the 

package. 

RECOMMENDATIONS: 

� Government should aim to act as a better educated commissioner of services. 

� Outsourcing and shared services contracts should, where appropriate, make 

budgetary provisions for suppliers to offer training and education for clients as 

part of the services package. 

� Both Government and suppliers need to educate their employees so they clearly 

understand the benefits of outsourcing and that they can act as partners to achieve 

mutually positive outcomes. 

2. TRUE PARTNERSHIP WORKING 

All outsourcing or shared services agreements are at face value a partnership between the 

customer, supplier and the end users. However, the Group believes there is value in making 

the distinction between cosmetic partnerships and authentic partnerships. It seems that some 

of the projects criticised in the past suffered either from a breakdown in the existing 

partnership arrangements, or from the fact that the partnership was only ever in name but not 

in practice in the first place. 

Many of the written submissions the Group received wrote in terms of true partnerships and 

shared culture and values. Specific criteria of partnership working were also cited by a 

number of contributors, for example: 

3 ‘Future of Outsourcing’, totaljobs.com, March 2012 

6



Alignment of business interests 

If alignment of business objectives is important in private sector outsourcing between two 

private sector entities, it is critical in a public/private partnership where cultural differences risk 

making the interpretation of objectives rather different. It is, therefore, clear to the Group that 

the business objectives of both the customer and supplier need to be aligned from the outset 

of a contract, as they would be more difficult to align once a contract has been signed. 

Written evidence submitted by Fujitsu confirmed this: “A significant factor in the overall 

success of the Local Government Shared Services (LGSS) endeavour has been a clear focus 

on the objectives and a strong alignment of all parties involved…what really makes everything 

work is the behaviour and attitude of all those involved. We have a very clear vision of what 

we are trying to achieve and no-one runs back into their organisational silos – it’s a very 

mature relationship. It simply wouldn’t work unless it was a true partnership.” 

The Group noted that over the course of a long-term contract it could be the case that 

interests of both the supplier and the customer might become misaligned – owing to a variety 

of factors such as changes in end user needs, Departmental finances, new technologies etc. 

Spot-checks or a mechanism to ensure that objectives are re-aligned are a vital safeguard in 

this instance and will help to avoid drift. 

Tim Leaver, Chief Procurement Officer at Land Registry, noted in his written submission to 

the Group that a key lesson learnt from his experience has been that: “More openness 

between parties would have avoided wrong assumptions being made. Face to face meetings 

or joint working environment would have sped up problem identification and resolution.” 

RECOMMENDATION: 

� Clients should ensure that business objectives are clearly and simply stated from 

early on in the procurement process, and shared by all parties. If business 

objectives change in the near to long term, the contract should give the supplier 

the ability to make reasonable adjustments to service delivery. 

Shaping the Business Case 

In a panel discussion organised by the National Outsourcing Association, and attended by 

more than 20 stakeholders, there was general agreement that the best procurements had 

been those where the suppliers have been involved in producing and shaping the business 

case early on in the process. 

Pre-procurement was brought up as an important stage of a successful project, but it was 

agreed that there could be more clarity around the conduct of these conversations. 

Stakeholders felt that the pre-procurement conversations could be unhelpfully overshadowed 

by various factors – Official cultural inertia to politically driven change, oversensitivity about 

equitable treatment in procurements, inherited practices unjustified by commercial good 

sense, and misinterpretations or inflexible use of EU procurement rules. For instance, one 

stakeholder said that there are “...Phantom rules or urban myths about what conversations 

you can have before the procurement comes out which inhibits suppliers from having properly 

constructive conversations about what it is that the client might want to have.” In an oral 

evidence session held by the group in March 2012, Phil Pavitt, CIO at HMRC, said that 

HMRC would really welcome more approaches by suppliers with innovative ideas. Somehow, 

these artificial barriers must be stormed in order to encourage the injection of transformational 

creativity. 

7



The panel said that there are some mechanisms available such as Intellect’s Concept Viability 

Process – which was endorsed by the Public Administration Select Committee 4 - but this has 

been taken up slowly and more should be done to implement it. There was also a problem in 

terms of accessing the right people with whom to have the initial conversations. Suppliers felt 

that conversations should only be conducted with senior Officials, but that outsourcing 

conversations are squeezed down in terms of priority. 


� Early and more flexible engagement is a desirable way of aligning the interests of 

the supplier and the customer. Both suppliers and customers need more clarity on 

how they should conduct these pre-procurement conversations to mutual benefit. 

Trust 

Trust between the supplier and the client has been cited as a key factor in a good working 

relationship, especially in large deals where there are many different interests at the table. Ian 

Watmore pointed out to the Group in an oral evidence session in November 2011 that when 

trust slips, contracts can get into an ‘arms race’ with both sides upskilling and bringing in more 

consultants. 

In oral evidence, Paul Bamford from Logica recommended that in the future we need to avoid 

a ‘rectangular table approach’ where negotiators park on opposite sides of the table, debating 

SLAs, contractual obligations and deal price – “This results in vendor relationships, not 

partnership relationships where over-performance can be rewarded.” 

From the supplier side, it was agreed that keeping key people from the public sector in the 

partnership throughout its lifetime was an important factor in ensuring trust between all parties 

and helping to develop meaningful relationships between all sides. Atos mentioned in their 

written evidence that optimum results arose when the bid team was also the delivery team – 

another way of keeping the key people in the relationship. 

Another clear way of maintaining trust throughout the lifetime of a contract is to ensure that 

the risks and rewards are shared equally, for example not penalising a supplier for reducing 

costs by reducing their income stream, perhaps instead letting both sides keep some of the 

savings but "spend" some (maybe the a major share) with the supplier to introduce a new 

function or service. 

Shared Culture 

The Group received some encouraging examples of how partnerships developed a shared 

culture. Agilysis for instance said in their written submission that: “One of North Somerset 

Council Chief Executive, Graham Turner’s stated aims for the partnership was that it would be 

so seamlessly integrated with council working that a visitor to the offices would be unable to 

pick out council staff from partnership ones – and we’re proud to say that in the less than a 

year, that is truly the case. This close collaborative working and integration at all levels of the 

organisation has been fundamental to our successful delivery against the council’s overall 

strategy and objectives.” Fujitsu stated how wider stakeholder participation helped to 

customise the service delivery model that they eventually implemented: “Key stakeholders in 

Cambridgeshire and Northamptonshire were given a high level of influence over the design of 

the service delivery model – customers had to buy into the project from the outset. As a 

result, these systems have become a critical enabler of sharing transaction services whilst still 

retaining the individual organisations’ priorities.” 

4 http://www.parliament.the-stationery 

office.co.uk/pa/cm200607/cmselect/cmpubacc/113/113.pdf 

8



3. OUTCOME-BASED SOLUTIONS 

A theme highlighted in the written evidence collected by the Group was that when outcomes 

were stated in the contract, it was easier for suppliers to deliver. Steven Barker from Atos said 

that specifying outcomes in contracts should be a core principle: “…If we understand the 

‘what’, this will allow for a wider range of innovative options which will be the ‘how’ of 

delivery.” 

It was thought that clients paid more attention to the processes that deliver outcomes rather 

than the outcomes themselves. The Group thought this should be addressed, with more 

emphasis placed on outcomes. 

Stakeholders from the NOA panel discussion agreed that generic back office processes were 

not as different from each other as thought. They said that there must be recognition of 

commonality – a ‘vanilla consciousness’. 

EURIM’s (The Information Society Alliance) submission to PASC enquiry into the effective 

use of IT made the point that Government is too focussed on looking for solutions elsewhere. 

They said that: “More time and money is spent hiring outside expertise (consultants) to look at 

new technologies than at what is being done better by other Departments and agencies using 

existing technology. The need is not for more spend on benchmarking, but for rewards to 

those who re-use what is being done elsewhere, as well as those whose solutions are copied. 

Those who claim their needs are unique, so they cannot reuse what is done by others, should 

be made to feel embarrassed.” 

RECOMMENDATIONS: 

� Clients should place more importance on outcomes, rather than processes, and 

ensure that outcomes are always clearly stipulated in contracts. 

� Clients should standardise service specifications where possible so that other 

potential participants within the sector can follow a successful model. It is 

preferable to maximise the commonality that exists between bodies rather than 

demand unnecessary individual bespoke services. 

� It is critical for newly created arm’s length bodies to review and adopt pre-existing 

successful service models rather than necessarily constructing their own systems 

from scratch. 

Social Outcomes 

The Group felt that it was very important for the social value of contracts to be better 

communicated and this would help to detoxify the image of outsourcing. A way of doing this is 

to specify social/public-oriented outcomes in contracts. In oral evidence, Ian Watmore raised 

the point that contracts were successful where there was a visible end goal. He used the 

example of prisons: “They are a clear example of where social impact can be seen. There is a 

difficulty in showing social impact/public good in intermediate contracts like IT. Contracts 

therefore need to have a public service oriented agenda.” 

A further example of this can be seen in the NHS Blood and Transplant’s written submission 

to the Group which stated that their outsourced national contact centre had helped to deliver 

their key objective– “Our principal requirement is to encourage people to become and remain 

Donors and research has shown the National Contact Centre to be a significant factor in this 

achievement.” 

Joint business ventures like NHS Shared Business Services (NHS SBS) similarly had clear 

social merit – written evidence from NHS Havering said that savings made by SBS were fed 

back into the NHS. 

9




� Where possible, social outcomes should be articulated in contracts and the 

benefits of those social outcomes for the general public should be celebrated when 

achieved. 

Promoting best practice 

The Group believes that one of the factors that might contribute to inconsistency in 

outsourcing contracts across the public sector is an absence of formal best practice guidance. 

The Group is aware that Special Interest Groups on best practice and governance exist in the 

private sector, and wonder whether the formation of such a group for public sector buying 

might also be of some value. 

The Group also sees merit in a repository or online portal, perhaps hosted by the Cabinet 

Office, which holds best practice examples and details successful models. This device could 

be used to encourage re-use and give public sector colleagues a forum to discuss ideas and 

experiences as they go through their phases of outsourcing or shared service. 


� Government should ensure that there is a robust and effective device through 

which best practice guidance can be communicated to public sector procurement 

teams. 

4. FUTURE OF OUTSOURCING IN THE PUBLIC SECTOR 

The UK as a destination for outsourcing 

During discussions with the various evidence groups a number of delegates said they felt that 

the lack of skills in the UK were a contributory cause to organisations moving work away 

overseas. The UK had many rich skill areas and that there were examples where these 

areas had actually attracted services here. However, there may be ways that the public 

sector in placing outsourced, shared service or mutual contracts, could encourage skills and 

competencies to be developed here. 

Multi-source vs. big supplier 

Single-vendor, long-term outsourcing contracts are not presently regarded that highly but 

should still be considered in the portfolio of solutions to achieving efficiency savings. Big 

contracts bring with them the possibility of upfront investment and a long term payback, 

enabling the public sector to make the transformation they need using private sector 

investment. The supplier delivers the lowest overall pricing due to economies of scale in 

procurement, operation and management. The size of the contract is a very powerful 

influence on the supplier. Clients should not underestimate the leverage that large deals gives 

them over their suppliers, nor the constant focus on value for money. 

Beyond the back-office? 

Criticism of outsourcing in general could breed reluctance to extend outsourcing to non-typical 

areas such as the middle office and front office. If there are benefits to be gained – why 

impose a false dichotomy? 

10



THANK-YOU 

The Group would like to thank all the speakers who addressed the Group in oral 

evidence sessions, and all the suppliers, buyers and end users that contributed written 

evidence and case studies to the investigation. 

APPENDIX A: OUTSOURCING IN THE UK 

Oxford Economics estimated that turnover across all ‘outsourced’ markets amounts to some 

£207 billion per annum, equivalent to some 8.0% of economy-wide output. The table below 

sets out some detail in terms of service provided and institutional sector of the client. The split 

private/public sector split is approx 60:40. 

Table 2.1 f prepared by Oxford Economics for the Business Services Association, April 

2011 

The £82 billion of outsourced provision to the public sector compares with total public sector 

procurement (of goods and services of all kinds) of £196.4 billion in 2009/10 5 

5 HM Treasury estimated out-turn, PESA 2010, table 5.5. 

11



APPENDIX B: Written Evidence (in alphabetical order) 

Agilisys 

Agresso 

Arvato 

Atos 

CapGemini 

Capita 

Channel 3 Consulting 

CSC 

Direct Path Solutions 

EURIM 

Fujitsu 

InTechnology 

LGSS 

Land Registry 

Logica 

Norse Commercial Services 

Nelson-Hall 

NHS Blood and Transplant 

Olswang 

NHS Havering 

PA Consulting 

Procession 

Spend Vision 

UNIT 4 

12

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