Partnerships: a marriage of convenience?

Tuesday, May 31, 2005

Christopher Head, Principal Associate Socitm Insight, profiles research into the challenges of making partnerships and outsourcing contracts work in local authorities.

The level of investment required to deliver transformational e-government programmes that lead to improved citizen service and back office efficiency gains can be very large Ð too large, in fact, for many local authorities to contemplate. In response to this, the Government and a number of local authorities have, over the last few years, been looking to private sector partnerships as a source of not just the required capital, but also the skills, capacity and know-how for local e-government programmes.

But are e-government partnerships with the private sector a serious, workable option for local authorities, or just wishful thinking? This is the question that a new report from Socitm Insight, published in association with CIPFA, seeks to answer. 'A marriage of convenience? A review of experiences from partnerships and outsourcing contracts' is based on new research with local authorities and their private sector partners, and provides a frank assessment of public private partnerships for ICT and e-government.

The research included questionnaires and interviews with 26 councils that have been involved in distinctive and significant outsourcing of complete business processes and departmental functions, as well as their ICT service. The research covered all types of UK local authorities, with the majority, as might be expected, being counties and 'single tier' councils. This sample included 25% of all councils involved in partnership and outsourcing contracts of this sort, and provides a very strong representative cross-section of practice and experience to date. Additional information came from special workshops and individual discussions with important stakeholder groups, including private sector suppliers and employee representatives.

The research uncovered contracts worth in excess of £122m per year, and an average value approaching £6m per year. With an average contract life of nearly seven and a half years, the survey covers nearly £1bn worth of work transferred from the public to the private sector, suggesting a total of nearly £4bn across the sector as a whole.

An important finding from our research is that the term 'partnership' is over used and its real meaning poorly understood. Thinking developed by formal procurement processes can frustrate the development of a true partnership from the start. It is the client that drives the procurement, yet use of the term 'client' itself reinforces the divide between the council as a prospective partner on the one side and the supplier as a partner on the other, and is reminiscent of the adversarial relationships typical of many old style outsourcing contracts.

The marriage metaphor runs through the report, which covers 'the courtship' (the procurement process), 'the wedding ceremony and honeymoon' (the contract signature and the period immediately after) and 'till death us do part' (the period after the euphoria has disappeared and the first big problem arises). Like real life marriage, the report notes that the divorce rate is rising and fewer contracts do actually last until 'death us do part'. Organisations that want their partnerships to work need to take note of the reportÕs main conclusions, which are set out below.

Call a spade a spade
We found too many arrangements labelled as 'partnerships' purely for political expediency. There is little evidence for mutual trust; indeed, some councils are cynical about their 'partner's' true motives. Partnerships do work, and very successfully too. But to make them work requires care, effort and a good deal of 'give and take'. Too many contract or partnership management teams are defensive and inadequately resourced (more on this below). They reach for the contract and impose penalties and service credits, rather than working with the supplier or partner to solve the problem.

Know what you want before you enter the procurement stage
Typically, the procurement process gets the relationship off to a poor start. Local authorities tell us that they cannot trust suppliers. Bid teams say that they can do everything, and make verbal promises. They stand accused of being na•ve about the public sector. However, suppliers see their prospective clients as na•ve too. Local authorities commonly do not understand the cost of the procurement process, and suppliers suspect that too many procurement competitions are run just to gauge the market with no real intention of awarding the business. Even where the competition is genuine, council teams display a lack of commitment or confusion. Suppliers offering different approaches remain in the final stages of the competition, suggesting that the procurement team does not know what it wants. Local authorities assume that suppliers do not talk to one another, but the supplier community is just as 'tight knit' as the public sector.

Use qualification as a 'reality check'
Local authorities want to run the procurement competition so that, at the final stage, there are three credible suppliers to choose from. However, they must understand the way in which suppliers manage their approach to the competition Ð the qualification process. If pre-sales management suspects that the chances of winning are low, or that the council team is confused, or that the contract is offering 'bad business', they will pull the plug. We recommend that procurement teams and management actively engage with the qualification process and use it as a discipline, or 'reality check', to ensure that the proposal makes strategic sense and is likely to produce the required outcomes.

Don't outsource a problem
Despite this well-known adage, some see the private sector as a way of tackling intractable internal issues. In many cases, they come to realise that managing a difficult issue at arm's length is significantly more difficult than tackling it directly, and simple outsourcing is not.

Look after people
The successful supplier needs the existing team to deliver the service after handover. They will want people they can rely on, not a disaffected workforce who feel that their loyalty has been abused and who cannot wait to find another job. Consequently, communications to employees, and the way in which they and their representatives are handled in the run-up to the contract handover, is key. Many organisations make the mistake of taking the strategic decision to outsource prior to consulting with the team. News leaks out of even the tightest organisation, and bad news leaks fastest. To retain any credibility with the team, their managers must involve them from the very beginning.

DonÕt leave 'due diligence' too late
Our survey shows that too many organisations leave 'due diligence' to the supplier and conduct it far too late. Starting the 'due diligence' process at the 'best and final offers' stage is common, and it is not unknown for it to continue after contract signature. We found that the number of problems related to 'due diligence' increased the later the work was done.

Know what's required to manage the contract
Quite understandably, councils try to use the smallest possible contract or partnership management team, so that they do not use up all the savings made through outsourcing or partnering on their own management costs. However, we have found many examples where the council found that their original contract or partnership management team was just too small.

The capabilities, attitudes and character of the people chosen to fill the supplier management role are critical. Councils should question closely the motives of those who want to stay with the supplier management team, rather than join the partner. They must check that those in this important role display the necessary broad and complex range of skills. Contract and partnership management is about more than just checking up on performance, and using whatever sticks are available in the contract when service falls below agreed levels. It is about building and maintaining the relationship. It is about understanding how trust is built, and acknowledging the give and take in the relationship. This needs someone who is personally very confident and comfortable with their position, because if give and take is not reciprocated, or acknowledged elsewhere in the organisation, the contract manager may have to take some of the criticism when things go wrong. Clients are very ready to use 'sticks' to reprimand poor performance, but few have any 'carrots'. We didnÕt find a single example of reward for service delivery above expectations.

Providing public sector organisations take note of the issues outlined above, there is tremendous potential for the public and private sector to work together in mutually beneficial partnerships, with the opportunity to save costs, access additional capacity and capability, and improve customer satisfaction. However, these benefits will not accrue just because government says partnership working is a good idea. Management teams need to know what they are trying to achieve and how they will achieve it, because partnerships are certainly not a 'quick fix' solution to any management problem. A successful partnership must really be seen to 'make a difference', and this is much more likely if it is based on realistic expectations that are shared.

'A marriage of convenience? A review of experiences from partnerships and outsourcing contracts', which is published in association with CIPFA, is available as a 72 page report at a cost of £175 + VAT. The report is free of charge to Socitm Insight subscribers and can be ordered from www.socitm.gov.uk.