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The Outsourcing Playbook – A New Dawn for Public Sector Contracting?

The UK government has this week published its Outsourcing Playbook (the Playbook) providing guidance for central government on getting outsourcing right, from making the initial decision to outsource through to termination, transition and dealing with supplier failure.

With in-boxes groaning under the weight of Brexit related government guidance it would be easy to miss the Playbook or to discount it as a tool only for central government procurement professionals. However, the Playbook makes for interesting reading for potential suppliers or anyone with experience of contracting with central government.

Of particular note is that the Playbook does not place the blame for previous outsourcing failures solely at the feet of private sector suppliers, rather it acknowledges that some central government customers may have expected too much from their suppliers or held unrealistic expectations around price and risk allocation. Arguably brave assertions given that the easier political option in turbulent times would have been to attribute as much blame as possible to suppliers themselves.

Central to the Playbook are 11 key policy changes covering the full project lifecycle from:

  • early visibility for suppliers of potential outsourcings;

  • testing the market, internal capacity and potential solutions before committing to a wholescale outsourcing;

  • mechanisms to identify and resolve service delivery and supplier issues; and

  • adopting a more realistic approach to contract terms, pricing and the allocation of risk.

This last category will be of immediate interest and practical application to suppliers (and their advisors) when formulating proposals to central government or who may engage in future contract negotiations.

Some particularly interesting points to note include:

  • the expectation that departments should not ask suppliers to take unlimited liabilities or be held responsible for errors in data (excluding forecasts) where a supplier is unable to complete due diligence;

  • that where suppliers are managing price risks outside of their control, that should be addressed through payment mechanisms or the use of indexation to avoid contracts becoming unprofitable;

  • the acknowledgment that where a department wishes to control how services are delivered it should adopt an input based pricing model and transfer no or minimal risk to suppliers;

  • the recommendation to avoid fixed pricing where the contract scope itself is not fixed or volume risks are outside of the control of the supplier; and

  • the health warning that getting risk allocation and payment mechanisms wrong can result in onerous and loss making contracts for suppliers resulting in unsustainable contracts which put suppliers and service delivery at risk.

The Playbook encourages stakeholders to highlight where practice departs from its recommendations and it will be interesting to see how the guidance translates into day-to-day experience and whether it delivers on its goal of government working appropriately in partnership with the private and third sectors to bring sustainable efficiency, scale and fresh thinking to the delivery of public services.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Paul Jinks Commercial Transaction Attorney
Director

Paul Jinks has more than 15 years’ experience of supporting major commercial transactions in both the public and private sector with a particular focus on large-scale IT and outsourcing projects (both first generation and, the re-tendering/re-negotiation of existing arrangements). Paul has supported major transactions across a wide range of industries and sectors, including the outsourcing of critical business functions by FCA-regulated businesses subject to SYSC 8 compliance requirements; projects subject to European Union procurement rules; and projects involving significant programmes...

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