Features: June 10th, 2003

A New Approach To Partnering With Government

By David Locke

More and more Government departments and agencies are embarking on modern outsourcing practices in order to provide best value for money. In developing outsourcing strategies, Government can learn a great deal from private sector’s experiences of outsourcing and service level agreements, both good and bad. But in order to experience the true benefits of these outsourcing agreements, third party help is needed to provide the cross fertilisation of the latest practices for both the supplier and Government.

The outsourcing dilemma for Government

Most outsourcing practices taken in the private sector can always be applied to outsourcing agreements made in the public sector, and although these are different environments they have a lot in common. However, the public sector has its own needs which are special to Government.

To get the best of private industry commercial practices and apply them in the context of the public sector, Government departments and suppliers often need advice and guidance from those who know both the public and private sector in order to ‘bridge the gap’ and devise the right types of principles and agreements. This process also ensures that both the service supplier and client get the most from the partnership, which, if managed properly, can lead to business benefits and long term performance improvements and reduced costs.

So what are the factors that need to be taken into consideration as the foundation for a successful relationship? Constant change is a fact of life for Government – be that new policies, sudden turns in economic climate, or the passing of new bills through parliament. All of these factors will influence the type of partnership agreements that need to be put in place with suppliers. Flexibility is required with suppliers from the outset to ensure that contracts keep pace with planned change and potential change whilst continuing to deliver value. There is a danger however, that the changes could be perceived by suppliers as an opportunity to charge Government agencies more for what they consider ‘off-schedule’ items, rather than use it as an opportunity to adapt to its challenging environment.

Key areas that need to be addressed as part of this process include help in developing performance assessment benchmark tests and IT healthchecks so that the Government department or agency can be confident that any tender addresses the key priorities of the stakeholders in the supplier selection criteria.

It should also include a review of existing arrangements and processes to ensure the supply of better quality services and possible alternatives. An understanding of how well the ICT function is regarded by stakeholders in other departments, by other Government departments and by its customers is essential at this point, and this is something that suppliers may not have the capacity to do.

Performance measurement issues

Measurement of performance and value has unique problems when it comes to measurement, assessment, performance comparison and setting targets and definition of strategies for improvement. Unlike other functions and departments, ICT cross-cuts the entire organisation, and is often a highly complex range of services thus requiring a unique method of measurement to prove value for money.

Driving out Best Value

The initial tender is a reasonable test of best value, which allows government to select the supplier with the best overall solution and price. However, because operational and strategic needs can change over this length of contract, it is necessary to have a mechanism to perform continual ‘market testing’ for the outsourcing agreement as part of the best value process. It is also necessary to have a way of assuring value from a services contract without going through an expensive re-tendering process which wastes both private sector time and public sector money.

This mechanism must also help in setting out measurement criteria to prove best value from the contract to the increasingly stringent requirements of the Audit Commission, The National Audit Office and HM Treasury.

With the complex situation outlined above, a third party can help in devising an outsourcing agreement that is impartial and that drives out best value from potential agreements to provide assurance that the most suitable and beneficial deals possible are being secured by Government. By basing analysis on measurable performance data in relation to what other Government departments do – and what other private vendors and service providers offer – ensures best value is achieved from public money.

The new approach

This process addresses the latest area in outsourcing agreements called the “Third Generation Benchmarking and Remedy Schedule”. In reality, the only way that IT outsourcing will cut costs is by delivering less. A Government body may wish to outsource for many reasons, but they shouldn’t do it just for efficiency reasons. However, a recent development in the modern, third generation outsourcing agreement is one of the most valuable additions since IT outsourcing relationships first began.

This relatively small schedule, buried in a large contract, demands that the overall value of services received is independently evaluated. And it is only now that real remedies can be applied and that the remedy element is having some bite.

Overall, it is clear that some of the modern outsourcing practices taken from the private sector can be applied to public sector ICT outsourcing agreements. However, due to the many complexities that exist in the public sector environment, it is essential that the differences are also taken into consideration and that the outsourcing model is adapted accordingly from the outset.

The way this works in practice can be illustrated by the way Lancashire County Council and Compass Management Consulting joined forces to deliver Best Value. The Council needed to understand how effective its current corporate ICT strategy was. The objectives of the review were to identify if the Council should rebalance the roles of individual Directorate involvement in ICT and to consider looking at alternatives like market testing IT operations as an option in developing a future ICT strategy.

In 1999 Compass was brought in to analyse the council’s IT performance against the best-performing companies in the private sector. Compass employed its fact based approach to measure IT performance in terms of quality, productivity and cost efficiency levels. It worked across three of the four directorates – Education and Cultural Services, Social Services and Resources – to analyse processes and procedures in relation to the desktop, servers, data network and application development. Detailed analysis was compiled on costs and inventory levels. The fact-finding mission enabled Compass to understand current levels of IT performance across each area.

In 2000 the analysis was repeated for the Environment directorate. User satisfaction surveys were carried out to establish attitudes to IT, levels of customer satisfaction with IT services and to identify the root causes of performance discrepancies. The results showed the Council did provide low cost, high quality services to users that were competitive with private sector organisations. The findings were presented to key stakeholders including ICT management and the ICT Steering Group in 2000. They highlighted improvement opportunities and provided a platform for future investment and strategic decisions.

Phase two of the project began in 2001 and focused on the delivery of ICT services across the Council. Compass was asked to take a holistic approach, to evaluate how services were being delivered to the council as a whole. A detailed stakeholder analysis was . Interviews were held with senior ICT management and senior business unit managers to establish views on ICT delivery and the effectiveness of ICT in supporting business activities.

The facts and subsequent analysis from Compass provided the Council with a detailed picture of its ICT performance. Compass used the facts gathered from the stakeholder analysis along with the information collated on costs and comparative analysis against leading practice to identify areas of strength and weakness in ICT performance. This formed the basis of the recommendations to the council on how to restructure ICT delivery. It was also clear from the analysis that a selective market testing approach for specific services would be most beneficial to the Council in supporting the effective implementation of an ICT strategy rather than outsourcing.

David Locke is a managing consultant with Compass Management Consulting which is an independent fact based consultancy that advises global organisations on operational improvement, providing measurable benefit to performance and profitability.