The risks of outsourcing

Outsourcing contracts can help local authorities manage budgets and deliver effective services. However, since Carillion’s liquidation in January, we’ve seen considerable scrutiny over the way that public services are contracted out to private sector businesses. The chaos and uncertainty brought about by Carillion’s collapse has demonstrated the need to mitigate the risks, particularly if there’s a dependency on a few large contractors to service local authorities’ outsourcing needs.

Several councils have already begun to bring services back in house, but this might be too hasty. There’s no need to throw the baby out with the bathwater just yet. Public-private partnerships can bring accountability and transparency to the provision of services, and many of the issues raised recently can be mitigated through legal structures and terms of agreement that allocate risk appropriately, with diligence and honesty at theoutset of discussions. All too often risk and insurance issues are left until the end of a process, and as a result the final agreement does not reflect both parties’ understanding as to what the risks are and who has assumed responsibility for them. Moreover, the earlier the involvement, the greater the chance that the ‘end product’ has of meeting an authority’s requirements, without exposing it to unnecessary risk. RMP has useful guidance for outsourcing here , along with advice on best practice.

As we have seen in recent months, the failure of outsourcing contracts can have serious consequences. However, with effective risk management, outsourcing can achieve considerable benefits for local authorities and the people they serve, as well as contractors.


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Readers should not act upon (or refrain from acting upon) information in this article and related document links without first taking further specialist or professional advice.

 

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Risk Management Partners Limited is authorised and regulated by the Financial Conduct Authority. Registered office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company no. 2989025


https://www.theguardian.com/business/2018/jan/13/carillion-in-crisis-outsourcing-operation-debts-rescue-talks

 

Risk Management Partners Limited is authorised and regulated
by the Financial Conduct Authority.
Registered office: The Walbrook Building 25 Walbrook, London EC4N 8AW.
Registered in England and Wales. Company no. 2989025.