Since 2010, businesses working with government and the wider public sector have made a great play of their commercial prospects in the UK. Investor presentations by CEO’s of the major outsourcing businesses are littered with references to the free market coalition government being less ideologically opposed to outsourcing than previous governments. Stockbrokers put long-term public sector austerity together with an assumption that the private sector will always be seen as leaner than government to produce BUY recommendations on the big bidding machines.
However the trend towards outsourcing on the ground is much more nuanced than you might be led to believe, and a lot of that has to do with politics. Although there is a pretty much a cross-party attitude that waste and bureaucracy has to be cut (one senior Tory I know, who is making deep cuts to one area of public service said: “labour can’t disagree with these cuts because they were going to make them anyway”), the “whens, wheres and hows” of getting the private sector involved are much more nuanced.
These are the main pieces of advice we give clients, as gleaned from our experiences of working with some of the protagonists on the outsourcing stage from both government and business:
1) This government is business-like, but not a lapdog to business. Whilst undoubtedly your average Coalition frontbencher has much more business experience than their Labour counterpart, business experience does not always equate to open-armed business friendliness. If anything, senior ministers involved in supplier contract issues and major commercial decisions, like Michal Fallon, Lord Deighton and Danny Alexander have exhibited considerable business toughness (Alexander is especially impressive as he has no business experience). Companies need to recognise this and work hard to demonstrate their value in economic and policy terms, not just blindly believe they’ll be listened to because they are from the private sector AKA more efficient by default.
2) Reputation matters more than ever. Outsourcing for any government is a risky affair. High profile outsourcing failures, for example G4S around the Olympics, as well as questions surrounding Serco and G4S in prisoner tagging, will mean much more scrutiny in future. Track record of delivery is everything, as is consistent, persistent communication to government about your capabilities in pursuit of other opportunities.
3) Be prepared for a tough negotiation. The Cabinet Office and Treasury are stronger than ever under this government: Treasury, for the obvious reason that the over-riding narrative for this government is cutting the deficit; Cabinet Office, because Francis Maude is the most powerful man in Whitehall, enjoying a very close relationship with the PM and having a clear programme of reform from the outset. Outsourcers need to be aware that in Treasury and Cabinet Office sit an extremely capable set of officials, many from the private sector, who are crawling all over supplier contracts and leading negotiations, often superseding the role of spending departments.
On this point, one large NHS supplier we know, who were involved in a massive commercial re-negotiation, were completely taken aback by the strength of the government negotiating bench when called before them – the impression we got was they naively didn’t expect officials to be as tough, and sharp, as they were. In another example, a senior Cabinet Office official also recently described to me that one ICT/comms supplier to government has “persistently failed” and that when their contract is up for renewal in 18 months it will be cancelled. “They’re completely deluded in trying to lobby us on this ” he said. That unambiguous commercial attitude is refreshing given we’re all taxpayers. (By the way it is also salutary for those lobbyists who think there’s always a lobbying solution in each and every government-contractor relationship. To those people I say: get with the programme, there’s not.)
4) Understand and align yourself to the government’s political and policy agenda. Taking a horizon view of what the government is setting out to achieve, and of some of its biggest problems, is essential for any company seeking to work with it. Services need to be wrapped around the needs of the public sector: given politics and policy drives much of the public sector agenda having strong networks and an understanding of politics and policy will give bidders a competitive edge.
5) Be cross-party. Even though this government is, in general, more pragmatic when it comes to private sector involvement, most major commercial opportunities are long-term so assume that your trajectory spans many governments. For this reason, despite the softening in the polls in recent weeks, engage with Labour as well as Conservatives and Liberal Democrats. More important than engagement, understand Labour’s policy agenda and start to think through how your offering can be aligned to a future Labour government or Lab-Lib Dem coalition, because if a new government gets in, and your face doesn’t fit, you’ll be out.