A toolkit for insourcing in Wales - 3. The potential for insourcing

Key messages

The potential for insourcing should be explored routinely and not just as a reactive response, for example to concerns about the cost or quality of current provision. This means embedding a systematic and proactive approach to considering the implications of choices in relation to service models and approaches.

This means building in opportunities to explore insourcing: 

• as part of the regular cycle of service review and planning
• as part of internal governance mechanisms, such as review or scrutiny processes
• in anticipation of the end of a procurement contract period and before considering contract renewal

To support this process, it is important to have a robust and transparent approach to data, to make visible the value of outsourced contracts and the scale of outsourced work by service area.

Further information

At a practical level, embedding a more systematic and proactive approach to considering the implications of choices in relation to service models and approaches requires consideration of:

• Strategy and governance
• Service design and review processes
• The cycle of commissioning and procurement

At a strategic level, this means acknowledging the contribution that choice of service delivery model can make in relation to the fair work agenda and other strategic priorities and, where appropriate, making this explicit. This may require a shift in emphasis from positioning the responsibility for service design simply as an operational choice, where service specifications, cost, and efficiency are the guiding factors, to acknowledging its relevance at a strategic level and contribution to the Wellbeing of Future Generations goals and ways of working.

This may differ in emphasis across different types of public sector organisation, but could include:

• Framing insourcing in terms of its potential contribution to priorities identified in Public Service Board Wellbeing Plans – for example, the climate and nature emergency, the fair work agenda, and local economic development
• Recognising the contribution of good work as a social determinant of health

There are various touchpoints in the governance arrangements and decision-making cycles of public sector organisations where the consideration of insourcing can be prompted or encouraged. In terms of political and governance cycles this could include:

• Manifesto commitments of local politicians – where elected politicians at a local level have clearly articulated to the electorate that consideration of insourcing is a political priority.
• Public Service Board Wellbeing Plans – the process of agreeing, refreshing and implementing Wellbeing Plans provides an opportunity for cross-partner discussions on how an approach to insourcing could contribute to local wellbeing priorities
• Governance meetings – provide an opportunity for committee or board members to question or challenge the degree to which insourcing has been considered. This could include cross-partner discussions at the Public Service Board as well as via individual organisations governance structures (e.g., cabinet, overview and scrutiny, committees, or board meetings)

Operationally, opportunities to consider insourcing will arise as part of the annual process of service review and the commissioning and procurement cycle, and this can be embedded into the service planning process and the ongoing process of contract management and review.

Checklist

• Policy and decision makers in my organisation are aware of the commitment to explore insourcing and how this relates to other commitments in the Programme for Government.
• There is awareness, at a strategic level, of the potential contribution that insourcing can make to the 7 Wellbeing Goals and 5 Ways of Working in the Wellbeing of Future Generations Act.
• Mechanisms are in place, at both organisational and Public Service Board levels, to routinely consider the strategic case for exploring insourcing (place-based benefits and organisational advantages).

In comparison to the position in England, public bodies in Wales have not historically embraced outsourcing to the same degree as their English counterparts. Wales is therefore starting from a baseline of less outsourced services to potentially return to a strengthened Welsh public sector. This is in part a reflection that despite a UK-wide shift towards increased marketisation and fragmentation of public services from the 1980s onwards, Wales has consistently maintained a stronger focus on public value and the importance of the public service ethos.

Due to the fragmented nature of reporting and classification it is difficult to provide an accurate quantification of the scale of outsourcing by public service area. Published reports (Government outsourcing. Institute for Government, 2020) on UK-wide data suggest that just over a quarter of the money spent on adult social care goes on in-house providers, with the figure being significantly higher for children’s social care.

42% of UK-wide waste collection budgets were spent with outsourced providers in 2018/19.

A 2013 National Audit Office report (The role of major contractors in the delivery of public services. National Audit Office, 2013) stated that 4 large contractors (Atos, Capita, G4S and Serco) accounted for a significant proportion of outsourcing in the UK across all public services. Examining the Atamis spend data for the Welsh public sector reveals that spending with these firms in Wales was £43m in 2018/19 and £30m in 2019/20 (note that this analysis is based on matching supplier names, not a complete analysis of beneficial ownership across all suppliers).

Based on stakeholder engagement, currently outsourced services with the most potential to insource are:

• Facilities management
• Catering
• ICT
• Leisure
• Social Care

It is recognised that there are specific issues and nuances which will need to be considered on a case-by-case basis.

In relation to catering, for example, a key barrier to insourcing is concern about the internal capacity of individual public sector organisations to navigate the complex regulatory regimes and auditing requirements relevant to food preparation and service. However, this capacity is likely to exist, particularly within local authorities, suggesting that a more creative partnership approach across Public Service Board partners could unlock opportunities to insource.

Catering is also a good example of where some outsourcing decisions are made because the outsourced provision provides a valuable and ongoing income generation opportunity. For example, franchised café facilities on public estates can provide ongoing revenue streams without the risks associated with insourced provision. This suggests a need, over the longer term, for Welsh Government to consider how the funding regimes for different parts of the Welsh public sector can strike to achieve the right balance and incentivise activity which delivers a broader societal benefit but at the expense of individual bodies’ balance sheets where there is a compelling case to do so.

Social care provision requires more nuanced consideration. There is a compelling case for removing profit from social care provision, and an existing commitment in the Programme for Government to do so in relation to services for children looked after. There is a compelling case to minimise the presence of extractive providers in local care markets. However, wholescale insourcing could undermine the valuable contribution of the third sector and democratically owned provision, which provides enhanced reach and reciprocity in communities and underpins the foundational economy approach. In CLES’ 2020 report (A progressive approach to adult social care. CLES, 2020) we suggest that a progressive approach to adult social care would represent a blend of provision encompassing:

• Inhouse delivery – where the service is delivered by the local state.
• Municipal enterprise – arm’s length management organisations and mutually owned companies.
• Worker ownership – cooperatives.
• Community ownership – community business, social enterprise and CICs.
• Local private ownership that supports a triple bottom line – namely, a concern for the wider community, the environment and workers, alongside the pursuit of profit.