How can public outsourcing be made to work?

Across OECD countries, between 15% to 45% of government expenditure goes on private procurement, so how can it be spent most effectively?

By Jiten Viyas

Jiten Vyas is the Chief Commercial Officer at VFS Global, the world's largest outsourcing and technology services specialist for governments and diplomatic missions.

25 Mar 2024

Private companies delivering public services is becoming common practice across Europe. From refuse collection to providing visa processing services, there is now a vast scope of activity involving the private sector. Across OECD countries, between 15% to 45% of government expenditure goes on private procurement.

The most common argument for public outsourcing is that the private sector can innovate and make efficiency gains in way that the public sector is not incentivised to do. Private sector partners can also bring flexibility. In our sector of visa administration, the private sector can scale up or down according to fluctuations in demand because it’s generally easier to change staffing than it is for governments. All this frees up time for consular staff to focus on their crucial job: deciding who should be given a visa.

However, despite such benefits, misinformation often abounds. Who pays for the service and at what cost is a constant source of confusion and, frequently, suspicion. For instance, contrary to common conceptions, the outsourcing of the logistics around visa applications does not cost most governments or taxpayers a penny, since the revenue private partners receive is funded by service fees paid by visa applicants.

Of course, there have been well-publicised examples where outsourced services have been accused of poor customer standards and high taxpayer costs. At times, private companies have left governments scrambling to find an alternative provider. For example, Oxfordshire County Council in England had to put the local fire brigade on notice that they may have to deliver school meals when a private provider collapsed. So there are some general lessons for governments to follow, and pitfalls to avoid:

1. Be realistic about what can be outsourced

Outsourcing works best for services that are easy to measure: waste collection, cleaning and maintenance, or administrative processing work, for example. Some activities – for instance the decision on who should be granted a visa or a passport – should remain core government functions.

2. Clearly define the objectives

Governments must clarify their aims. These could include, for example, reducing time and costs or improving customer service. Any ambiguity may mean private-sector companies build in a risk buffer in the budget when tendering, resulting in inflated bids.

In an area like waste collection, defining objectives is relatively easy because simple key performance indicators (KPIs) can be drawn up. Are bins being emptied on time? Is the waste being handled safely? Are the bins being left in the correct place for residents to retrieve?

In other areas, targets require more consideration. If telephone support services are being outsourced, measuring, for instance, response times at different times of day will likely produce better outcomes than simply demanding providers meet a set level of staffing.

3. Select on cost and quality

Some of the outsourcing disasters that have hit the headlines have been as a result of the public sector accepting “low-ball bids”, according to the Institute for Government, which suppliers then struggle to deliver. Selecting not just on cost, but on quality, is essential. 

4. Ensure tender processes are open

Long or arduous tender processes can restrict the pool of bidders including shutting out smaller businesses. Tenders may also often need to be broken down into manageable parts. Processes that are too expensive and restrictive will shut out potential new entrants to the market.

5. Monitor service standards closely

Even well-negotiated contracts might not translate into good services due to weak contract management. Governments must retain the skills and capabilities to monitor performance and enforce service level agreements. Governments must also have the expertise to decide on key requirements and “technical architecture” for the next contract. Otherwise, governments will be reliant on the incumbent to design the future solution.

6. Be prepared to pivot

In contracts that run over a long period, there should be leeway built-in to respond to unavoidable changes in requirements, preventing costly renegotiations down the line. Flexibility is especially important in technology outsourcing since technological advancements are likely to develop over a three-to-five-year contract.

7. Trust is essential

Governments need to trust providers not just on the immediate task, but on handling sensitive data to the highest standards and protocols. Governments come under greater scrutiny than any other sector. Mistakes can become a crisis unless quickly addressed.

In partnership with

File:VFS Global Logo.png - Wikipedia

This article was produced in partnership with VFS Global. VFS Global is the world's largest outsourcing and technology services specialist for governments and diplomatic missions. The company manages non-judgmental and administrative tasks related to applications for visa, passport, and consular services for client governments, enabling them to focus entirely on the critical assessment task. VFS Global is the trusted partner of 67 client governments, operating a global network with more than 3,300 Application Centres in 145 countries. The company has processed over 261 million applications since its inception in 2001 and over 119 million biometric enrolments since 2007.