Public sector outsourcing has three intractable problems

I have worked on both sides of public outsourcing over several years and have spoken about it many times but I have never written about it before. It is an issue that never goes away so I am finally going to put my thought on record.

Public sector outsourcing has three intractable problems:

1. The motivation of the two parties are different
2. It leaks money out of the process
3. The balance is always in favour of the supplier.

I'll start with a familiar story. President John F. Kennedy was visiting NASA headquarters for the first time in 1961. While touring the facility, he introduced himself to a janitor who was mopping the floor and asked him what he did at NASA. “I’m helping put a man on the moon!”

In Management Consultant speak that demonstrates a Shared Vision or a Golden Thread running from the top to bottom of the organisation, and it was probably called One NASA at some point.

Now let us look at how outsourcing changes that story.

Motivation

When the janitor works for an outsourcing company his motivation changes. His priority, and what he gets paid for, is making money for his new employer, the outsourcing company.

This means doing as little work as possible while still meeting the contract. It means cleaning less thoroughly, using cheaper materials, using cheaper and less skilled labour, and even falsifying records to claim for work not done.

Leaks

The outsourcing company makes a profit from the contract which it uses to pay shareholders etc. This money which leaks from the process is no longer being used to clean NASA premises, or to do anything else for NASA, it has gone.

Balance

Somebody like NASA outsources a service like cleaning infrequently, say once every three years. In contrast, the outsource provider may negotiate hundreds of similar contracts a year.

That imbalance in experience always favours the outsource provider and leads to contracts that can come back to bite, like the famous examples of charging a small fortune to do a simple job ike change a light bulb.