Latest News  

UK: Outsourcing is leaving public sector bodies financially exposed

The trend towards ever-greater outsourcing is putting vital public services in the hands of potentially unstable conglomerates but leaving public bodies with the asset risk, argues Colin Haslam.

2015-11-05 14:25:32

From the 1980s onwards, the UK government has employed contracting out to provide public services. The National Audit Office estimates that the government spends £187bn on buying in goods and services. It is difficult to separate out service outsourcing from traditional goods procurement in the official statistics but it is clear that government spending with third parties continues to expand, especially at local government level, Haslam writes on the London School of Economics and Political Sciences' blog.

The advocates of outsourcing view contracting out as a way to reform public services, improve efficiency and generate value for money. Outsourcing contracts are announced in press along with the claim that millions will be saved. However, the extent to which these contracts are delivering value for money and reducing costs is difficult to assess because contract details are generally withheld on grounds of commercial confidentiality.

A further complication is that local and national government agencies are contracting with outsourcers that consolidate many contracts into portfolios. These are often large conglomerates or specialist firms, some of which are British companies, others subsidiaries of foreign multinationals or private equity holding companies. This accumulation of many contracts within a few large firms forces national and local government agencies into a dependency relationship because they no longer have the operating capacity to deliver public services. This dependency is reinforced because many outsourced contracts are for the provision of foundational economy services such as health, adult care, welfare, and household waste management that are essential for a civilised life.

Conglomerates like Serco or G4S manage hundreds of diverse contracts for UK national and local government agencies. Serco and G4S are in a constant struggle to find growth to secure additional profit and this means capturing new contracts, winning renewals in a competitive market, and turbo-charging growth through the acquisition of other firms. These firms chase revenue and profits but this strategy also inflates their balance sheets: liabilities in terms of debt outstanding and goodwill representing the difference between the market and book value of acquisitions. Increased pressure to win new contracts and keep delivering growth for investors has resulted in poor judgements over the choice of new contracts, what to renew and what firms to acquire.

Mistakes and misunderstandings resulted in a £1.6bn write down in the value of Serco's assets forcing an intensive restructuring strategy.
Even contracting out specialists such as Biffa and Veolia are under pressure to generate financial leverage and boost shareholder returns from contracts with the public sector. Biffa, a household waste management company had to write down roughly £1bn of debt finance to restructure its over-capitalised balance sheet. Veolia UK, another specialist operator, is under pressure from its French parent company to generate returns.

According to International Public Sector Accounting Standards, off-loading responsibility for the management of contracts to the private sector does not involve transferring the responsibility for asset value risk to the operator responsible. Assets attached to an outsourcing contract will still be reported on the public sector accounts where the public sector entity either regulates the contract or can take up ownership of the assets at the end of the contract. Public sector reporting entities, as a consequence, are exposed to fair value impairment risks to these assets, which could undermine reported net worth leaving taxpayers to foot the bill.

Outsourcing of public services creates new problems and risks. Public sector expertise and capacity to deliver essential services are being hollowed out. Foundational services, upon which we all depend, are transferred to conglomerates and specialists prone to financial instability and collapse. Public sector reporting entities in the meantime are not able to transfer asset risk associated with their outsourced contracts leaving them exposed to impairments that could undermine their financials.

Colin Haslam is professor of accounting and finance at Queen Mary University of London


0 COMMENTS ^ Go back to Top
WRITE A COMMENT ^ Go back to Top
 
Your email address will not be published.
Nickname
Email
Comment
Validation Code
   
 
 
NEWS
Bitdefender signs accord with American router producer Netgear

The software producer Bitdefender signed a technology licence partnership with the American equipment producer for Netgear networks, which will include in its products security solutions for smart devices, deve

 Read Full article »
Laurentiu Lazar, promoted as Managing Partner at Colliers International Romania

Laurentiu Lazar, Senior Partner, Investment and Valuation Services, will take over as the new Managing Partner of the real estate consultancy company Colliers International Romania, effective as of March

 Read Full article »
Upcoming event brings Retrospective in Labor Legislation on February 15th, at Bucharest

Outsourcing Today, together with Fine Law, organize The 2017's Retrospective in Labor Legislation event on February 15, 2018 at Caro Hotel Bucharest, a knowledge sharing event dedicated to the latest significan

 Read Full article »
A.T. Kearney: The widening impact of automation impact the business model of outsourcing

According to a recent article of A.T. Kearney and based on the findings of Global Services Location Index for 2017, the developing nations have long enjoyed the economic benefits of other countries' offshoring.

 Read Full article »
Freelancing – a solution to staff shortages for companies

According to Smartree Romania, a leading provider in Romania of outsourcing payroll services and personnel administration, freelancing has become more present among Romanians lately. Working with freelancers ca

 Read Full article »
Kaspersky Lab: Targeted attacks on radar for industrial organisations

Of the industrial companies that participated in the IT Security Risks Survey , every fourth has faced a variety of cyberattacks. Worryingly, one of the fastest growing types of threat among the multitude targe

 Read Full article »
E-commerce: Romanian companies sell online on their own, above EU average

A share of 16 percent of all enterprises located in the EU and employing at least 10 people received orders via a website or apps (web sales) in 2016, Eurostat reveals. At the same time, more than 8 in 10 enter

 Read Full article »
FAB LAB Iasi nominated at CEE Shared Services and Outsourcing Awards in Warsaw

Iasi city, in Eastern Romania, together with Conduent company and FAB LAB IASI project have been nominated at CEE Shared Services and Outsourcing Awards, to take place at Warsaw at the Hotel Intercontinental o

 Read Full article »
Endava and Velocity Partners announce merger to become truly global IT player

The merger between Velocity Partners, an innovative software development company with a strong presence in Latin America, and Endava, a global technology company with a sustained consistent growth and offices a

 Read Full article »
ACADEMY+PLUS: The partnership with private sector enables the forming of IT specialists meeting market demands

ACADEMY + PLUS, the free programming school, officially opened its activity in Bucharest. The inauguration takes place in partnership with the private sector and aims to train 140 IT specialists within the fram

 Read Full article »
 
 
MOST READ ARTICLES
» ROMANIAN OUTSOURCING AWARDS FOR EXCELL...
» Romanian Outsourcing Awards for Excell...
» Molson Coors started to grow its busin...
» Romania's IT industry could grow at an...
» TELUS International: How customer serv...
» Capgemini to open new office at Suceav...
» ABB opens the first robotics training ...
» Comdata to buy four subsidiaries of Fr...
» Four companies represent Romania in De...
» Committed to growth
 
EDITOR CHOICE
TELUS International: Chatbots - The pros and cons of automated customer service

Learn what key factors to consider before introducing chatbots to your customer service strategy

 Read Full article »
Why AFI Tech Park is the best value for money office project in Bucharest(P)

Based on the insight that location is a strong criteria employees take into consideration when choosing their workplace, AFI Europe Romania is currently developing AFI Tech Park, the newest office destination i

 Read Full article »
Shifting the workplace perspective towards high-end added value

This month, OUTSOURCING TODAY organized The Workplace of the future in IT and Outsourcing at Caro Hotel Bucharest, a new concept event meant to connect fast-growing corporate tenants from IT and outsourcing ind

 Read Full article »
Andrei Romanescu, Managing Director of Veeam Romania: Outsourcing sector, a decade evolution

Since the early 2000s, this sector has grown at a significant rate (about 20-30% per year). The industry has evolved from focusing on cost and labour arbitrage to adding value – therefore the growth is not so

 Read Full article »
TELUS International Europe: Discover how successful smart-home providers deliver exceptional customer service

Key Takeaways

• Internet of Things (IoT) connected home devices are making the contact center and customer service more important than ever. • A friendly approach and positive attitude are import

 Read Full article »
Latest News  
 
about us | newsletter | contact | members area
Copyright © 2015 by Diplomat Media Events Design by Diplomat Media Events