- Public, Wednesday 7 October 2009 11.00 BST
Outsourcing in a cold climate. Lessons have to be learned from the Icelandic bank fiasco. Photopgraph: AFP
Whatever the outcome of next year's general election, local authorities and other public service providers will face a new round of tough choices. While these can be brutally summarised as how to dice and how deep to slice, many authorities will try to reduce costs but maintain services as well as possible through outsourcing to commercial or voluntary sector providers.
Although outsourcing may reduce costs, there may be risks involved that could bring new reputational dangers to authorities that are still under the media spotlight in the wake of issues including Icelandic bank losses and child protection.
So was the message conveyed at a recent Guardian roundtable debate on public sector outsourcing and risk, which can be read in today's paper.
The debate focused on how to balance making savings through shared services, partnerships and outsourcing, both to commercial firms and the voluntary sector, with the unquantified – perhaps unquantifiable – risks this approach can bring.
Mike O'Donnell, director of finance at the London borough of Camden, agreed. "There is a tension between managing outsourcing organisations and the risk in the public gaze," he said. But he warned against "making risk management a box-ticking exercise".
Vijay Chandiramani, of outsourcing provider Liberata, said: "Culture is the biggest challenge. Many in local government don't have the right training to assess risks, although there has been a new attitude over the past year."
Participants agreed that there is a danger in concentrating risk management in one department or one executive. But with outsourcing, the difficulty is in deciding which side of the partnership is responsible for what risks, and how problems are shared.
According to Zurich Municipal's Andrew Jepp: "While authorities can outsource the responsibility for delivering a service, they cannot abandon the accountability for what they do.
The public does not make that distinction, so whether a service is outsourced or in-house, they will blame the authority for failure – and that will affect elected members. And risk can continue to the end of a relationship – handling the exit strategy can be tricky – as well as into continuity planning."
Gareth Davies, of the Audit Commission, asked: "Are we at a tipping point of risk-sharing in local delivery?"
Charles Thomas, from Essex County Fire and Rescue, responded: "We have to look at the role of the Audit Commission in leadership. Are we too templated? How will the 'tickbox approach' change? What works in Essex may not be applicable in other counties. Too much emphasis on style can stifle innovation."
David Halpern, of the Institute for Government thinktank, said local government still has a long way to go in understanding risk. "It's both positive and negative. Just trying to avoid risk means you stick with what you know, rather than looking beyond."
But others thought it might be easier to stick with what you know, fearing that risk was asymmetrical – that they would lose out if something went wrong, while not picking up rewards if the risk proved worthwhile. "We're not good at understanding risk-taking," said Andrew Jepp. "The Icelandic bank fiasco was a good example, where the inevitable outcome was a media circus – executives losing jobs – so it's not surprising there is a lack of innovation or positive risk-taking."
The key question, according to O'Donnell, is whether present structures are fit for purpose. "If we have to reduce costs by 20% or 25% over the next 10 years, our approach has to be different .We have to consider shared objectives with outsourcing firms at a lower cost."
Halpern argued that changing service procurement methods would not save that much. "We have a choice – follow the Canadian model and make huge, selective cuts, or the Swedish model, with its cuts across the board. The second option is politically easier, with tax cuts as compensation. How we play this depends on the risks we are ready to take.Things will be very different in five years' time."
Participants discussed whether money would be saved by "personalisation", where people who receive care support, whether from statutory services or self-funded, will be empowered to shape their own lives and the services they receive. Some feared there could be a risk that we spend more and achieve less.
"That could depend on how gutsy elected members are," said one participant. Another said it was likely that service users would have to share more risks – just as more people do now with pension rovision.
Despite the need to make budgetary cuts, participants remained upbeat. "We're in local government to make a difference," Tuckley stressed. "We have to grasp the opportunity to make changes in what we deliver and how we do it."
This is an extract from a roundtable report that appeared in SocietyGuardian, 7 October 2009. Roundtable report commissioned by the Guardian. Discussion sponsored by Zurich Municipal
