The Decision to outsource

24. Consequently, most witnesses to our inquiry argued that decisions to outsource or not should be made on a programme-by-programme basis. Serco advocated "a robust, rational, documented … 'make-or-buy' decision-making process" for each potential outsourced or insourced contract.60 John Tizard, a former executive at Capita, called for this process to be mandatory across the public sector.61 Sir Amyas Morse said that "there should be a business case" explaining the rationale for purchasing a good or service, rather than producing it internally.62

25. The IfG has set out ten questions which it considers should guide public sector managers in making decisions about whether to procure or not from the private sector. These include questions about the complexity, uncertainty and supply of provision.63

26. The Government has also advocated a pragmatic, evidence-based approach. John Manzoni reaffirmed to us the principle set out the Civil Service Reform Plan in 2012 that "Departments will commission services from others where this achieves a better service to the public or better value to the taxpayer".64 The Minister said that "what matters is that the service works for the people who use it in their everyday needs. While at the same time providing value for money for the taxpayer".65

27. The Treasury issues guidance to departments on this evaluation in a document called the Green Book. The Green Book sets out the Government's approach to evaluation and appraisal of projects. The process for approving new projects covers what the Government describes as the strategic case, the economic case, the commercial case, the financial case and the management case for the project.66 The Government supplies supporting detail of what it means by each of these cases: in the analysis for the economic case, for example, the Government says it analyses whether "the spending proposal optimises public value (to the UK as a whole)".67 During this process, a proposal goes through various checkpoints. At one of those checkpoints, the Outline Business Case (OBC), the department is supposed to set out a "'preferred option' which demonstrably optimises value for money", including a strategy for procurement.68 The department does not just evaluate in deciding on this preferred option between a public and private sector route: but also evaluates what kind of public or private sector arrangement it needs to deliver services. The Government told us that it is currently updating the Green Book guidance on business cases to reflect changes in legislation and "better thinking about how we do the things that we are doing".69

28. However, we have received evidence that this is not the process that the Government currently follows. The Trade Union Congress criticised the Government for not following the IfG's guidelines.70 Nick Davies said that the Government "has tended to rush into outsourcing approaches" without evaluating whether they are appropriate or how to mitigate any risks if they are not appropriate.71 There are examples in which decisions about whether and how to procure were made before a formal business case process was concluded.72 Sir Amyas Morse agreed that "there are, no doubt, cases where I would not be happy with the amount of logic or consideration that had gone in" to the decision.73 The CBI and David Walker both criticised this decision making.74

29. The Government rejected this criticism. John Manzoni told us that all decisions to purchase a good or service "go through that scaffolding, they go through those decision points and they are examined and scrutinised and a decision is taken."75 Rupert Soames said that while the Government might assert it did this well, "we never see the grounds for that-it is shrouded in opaqueness, on what grounds the Government decide to put something out or not. I think that that should be a transparent process".76 When asked whether the Government should be more "open about… [its] logic" on this kind of decision, the Minister replied that he could see "no objection to that in principle".77

30. There was a consensus among the witnesses to our inquiry that the Government should be taking a reasoned, evidence based make-or-buy decision. The Government has set out criteria for this in its Green Book guidance. This decision is not binary between private provision and public provision but should include a number of alternative methods of provision, several of which might involve commissioning the service or providing the service in-house. We heard conflicting evidence about whether the Government consistently follows its own guidance in this respect. It is impossible to tell from the outside whether decisions have been made appropriately.

31. It is intolerable that the Government is spending £250 billion with little evidence that it is currently following its own procedures to secure value for money. The business case procedure set out in the Treasury's Green Book provides a suitable basis for making decisions about whether and how to let contracts. However, we are concerned by the evidence of the Comptroller and Auditor General that this is not always followed. The Cabinet Office and Treasury should ensure that all contractual decisions are based on a sound business case and in accordance with the guidance laid out in the Green Book.

32. Public trust in outsourcing has been seriously damaged recently. This is due to a number of high profile failures-including most recently the failure of Carillion. The Government needs to rebuild trust in the process by which it makes decisions about outsourcing. The Government can only achieve this by being transparent about how and why it decides to purchase a good or service. Especially in cases where private sector involvement or the type of commissioning is novel, the Government should publish its rationale for the decision and notify the relevant select committee. This might take the form of a published business case, for example.

________________________________________________________________________________

60 Serco LCC0022

61 (John Tizard) LCC0005

62 Q497

63 Institute for Government LCC0040

64 Q746, (John Manzoni); The Civil Service Reform Plan, June 2012, p. 8

65 David Lidington, Chancellor of the Duchy of Lancaster speech to Reform, June 2018

66 HM Treasury, Public Sector Business Cases: using the five case model. Green Book supplementary guidance on delivering public value from spending proposals, 2015, p. 11

67 Ibid. p. 12

68 Ibid. p. 19

69 Q748 (Gareth Rhys Williams)

70 LCC0018 (Trade Union Congress)