Stop laughing and start learning from public sector outsourcing

Public sector IT outsourcing projects usually get a bad press. When something goes wrong, the mistakes are often out in the open - usually by law - for all to see. So why is it that Alistair Maughan, a senior partner at law firm Shaw Pittman who has been involved in some one of UK's biggest public and private deals, says one of the great untold stories is how a much-maligned sector can teach private companies a thing or two?

A recent survey* highlighted the differences between the public and private sectors’ views on and success with outsourcing. It suggested the public sector is better than private companies at running IT outsourcing projects. As a lawyer specialising in IT outsourcing, I agree with this, and would like to substantiate how businesses can learn from the public sector in its handling of technology outsourcing transactions.

In general terms, there are three elements of technology outsourcing that the public sector handles better than private businesses. The first is the initial procurement stage, where the public sector is obliged by law to conduct a competitive tendering procedure, receiving tenders from numerous vendors. While this also occurs in the private sector, many private sector companies also use so-called 'single tender' procurement exercises. The drawback of a single tender process is that there is no competitive leverage to drive out best value for money.

The second element is resources. In my experience, public sector organisations dedicate more resources, time and staff to manage and oversee the project from the initial procurement stage to completion.

With private businesses, there are typically fewer or, often, no staff exclusively dedicated to a project, which usually means multi-tasking by a team, where the management of the project leads to extra hours, rushed decisions and lack of focus.

Also vital for the success of a technology project is commitment to the end product. Public sector organisations - once they make their decisions to outsource and decide who the vendor will be - stay with the project until completion.

In the private sector, there are a number of factors that may lead to the abandonment of a project, including change in strategy, lastminute deviations and lack of flexibility between the business and the vendor. This lack of commitment can cost businesses dearly.

Although many public sector technology contracts have been publicly criticised, for example those at the Passport Office and certain NHS contracts, this is not to say the same problems don’t exist for businesses. Private sector organisations are better trained to keep their dirty linen away from the public gaze. In addition, the public sector does not have the luxury of maintaining confidentiality when contracts fail - the Public Accounts Committee, NAO, Audit Commission and various other bodies are endlessly scrutinising deals and ordering information is made public.

From a legal point of view, the public sector prefers to negotiate to a mutually satisfactory conclusion, rather than take legal action if problems arise. This approach, in most cases, leads to a finished project. The project may be completed later than planned and perhaps over budget but at least it is implemented.

On the other hand, it is much easier for a private business to bail out of an outsourcing deal entirely, if a single element collapses or even take legal action if a problem arises. These add significant costs to projects, which for the most part have been organised to reduce business costs in the first place.

In terms of the outsourcing procurement process, the public sector certainly takes its time. This is partly down to EU procurement rules but also due to the inherent slowness for which the public sector often gets criticised. However, this lack of speed also has its benefits. It leads to a better understanding of outsourcing processes, for one thing.

In addition, the extensive justification and business case process that the public sector procuring authorities need to adhere to tend to lead to a more stable and secure outsourcing transaction. As a result of all these factors, public sector outsourcing tends to have a greater likelihood of success.

Many recent public sector outsourcing projects have received adverse publicity but the reasons for this have been political rather than commercial. For example, the Benefits Agency and Post Office’s proposed Benefits Payment Card in the late 1990s came about partly to support and boost the Post Office network rather than for any apparent technical or commercial reasons.

Because the private sector is profits-driven expectations for savings and business benefits are higher - and public sector organisations can learn from this. Paradoxically, the public sector is more thorough at building and using 'public sector comparators' and 'should cost' models to set initially correct expectations.

While the public sector is perceived to be lagging behind business in numerous categories, commercial businesses can actually learn a thing or two about outsourcing transactions from its inherent approach. There’s no shame in using the templates, processes and experience for application to commercial outsourcing deals. The results are a more carefully planned and managed process, implemented at a pragmatic speed and using appropriate negotiation skills to see a contract through.

Alistair Maughan is a senior partner at Shaw Pittman LLC, a law firm that specialises in IT and outsourcing transactions. He has worked on numerous high-profile public and private sector technology outsourcing deals over the past 12 years on behalf of clients such as the MoD, Benefits Agency and Home Office as well as the Inland Revenue’s ASPIRE project, the largest public sector IT project.

*Source: PA Consulting