Private Sector Delivery of Public Services
By Jeremy Long, Chief Executive GB Railways.
Reproduced by permission of the Public Management and Policy Association.
With all the current adverse publicity surrounding rail privatization it is perhaps unusual to link the words ‘delivery, right people, right things’ with the word ’railways’ as an example of why there are strong arguments for private sector involvement in the provision of public services.
It is true, of course, that the privatization of the rail industry has not been universally successful. There have, though, been some notable achievements and examples of clear and successful transitions from public to private ownership and management of which the private sector can be proud.
Anglia railways, for example, has achieved the highest revenue growth of any operator in the industry. Given that fare increases themselves are capped, the fact that revenue has grown is a clear sign of customer satisfaction We have also been recognized for the level of innovation and investment we have achieved and how this has been applied. Plaudits have come not just from within the rail industry but also – and perhaps more significantly – from outside, in particular for our work on regeneration and community involvement.
Benefits of private sector involvement
In the right circumstances, private sector involvement in the provision of public services can help, though the application of private sector skills has achieved sustainable change more quickly. It can also offer improved access to funding. It creates a more competitive market. It also facilitates innovation, which in turn makes it possible to achieve efficiencies and better value for money. Innovation is difficult and requires the ability to break rules, to live without rules for a time and to be accountable for one’s own mistakes. These three elements are difficult to achieve in the public sector. It is, therefore, perhaps easier to innovate in the private sector – parts of which, at any rate, are less bureaucratic and rule bound than many of their public sector counterparts. It also presents opportunities to transfer, or at the very least, spread risk. Transferred properly and on a win: win basis, this can help create value for money and performance targets that make sense.
Some at least of these benefits can be exemplified by reference to rail privatization.
Railways – better in private ownership
Since privatization we have been able to attract considerable private sector skills from other industries. Our workforce is now made up of about 60% former British Rail employees and 40% originally from elsewhere. The mix varies between different parts of the business and we look carefully at each to see what blend is likely to be successful in bringing about the changes we think we need.
In particular, we are benefiting from ‘external‘ expertise in marketing, product management and technological development. Bringing expertise into these areas from outside the rail industry has helped:
- refocus the business from the customer’s perspective
- make our marketing both more pragmatic and more aggressive
- technological innovation.
We’ve been careful to recognize, and I’d venture to suggest this sets us apart from some of our competitors, that at the time of privatization British Railways already had a significant amount of highly developed process skills. British Rail was not, as some thought, badly run in terms of its process skills and internal methods.
What it didn’t have was access to funding on a scale that privatization has brought about. Post privatization there has been very considerable investment in rolling stock and infrastructure. The long lead times in both these areas means that passengers have still largely not felt the benefits of this investment. Real improvements – the result of investments already made – will though, become evident in the next 2 to 4 years.
Better services for local communities
Some operators have worked hard to build strong links with their local communities than existed before. This, in turn, has led to improved services and business performance. This has worked at all sorts of levels and in all sorts of ways. At one level, it can be seen in local station improvement programmes with local staff and communities working together to improve their shared environment. At another, by consulting with local business and other communities about stopping patterns, and the seasonal demands on some services and requirements for rolling stock, we have been able to adapt our services better to reflect local needs.
By working with local passenger groups, and not just the national groups with whom we are obliged to consult, and by helping them promote themselves, we are helping build the use of railways by the wider community. This, in turn, makes it easier for us to argue for investment. We are also working with local authorities, councils and businesses so that we are able to work in partnership based around a better understanding of their needs.
Privatization – criteria for successful delivery
In order for private sector involvement in the provision of public services to work better there are a number of criteria that must be met.
Key among these is that there needs to be a very clear specification with qualitative as well as quantitative objectives which sets out not just what will be privatized but also how. This specification needs to be flexible. It needs to recognize that it will evolve over the first term and quite possible continue to do so over subsequent terms too.
There needs to be a thorough and realistic evaluation of the risks being transferred. This includes economic risks as well as those which may initially be more obvious – for example health and safety.
Attention needs to be paid to the culture of possible suppliers and not to decide on price or price and track record alone. This is common practice in our personal lives. Few of us, for example would choose a builder or decorator solely on price; references, skills, flexibility and attitude would all come into play. It is also common in the private sector- when working within itself – to take the culture of possible suppliers into account when deciding where to award contracts. This needs to happen more often when awarding contracts across traditional sector boundaries. There needs too, to be better understanding by both sectors of the culture, values and strengths of the other.
In contracting out there needs to be clarity about whether this is being done on a cost plus or full risks basis. Whichever approach is chosen it needs to be on a win: win basis and the public sector still has some way go in working in this way consistently with private sector partners.
Finally, any contract needs time to work. In working between itself the private sector recognizes that any major undertaking needs time to evolve and to learn from the inevitable mistakes. That same understanding and flexibility needs to be there in contracts between the two sectors if they are to work effectively in partnership and deliver improved services as a result.