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Better public services – let’s forget ideology and learn from past mistakes

Quentin Maxwell-Jackson, an independent management consultant and research associate at the liberal CentreForum think tank, says the factors that result in success or failure in public services are similar whether the deliverer is public or private.

The public debate about how to achieve better public services has unhelpfully been dominated by adversarial ideological stances which state ‘private sector good, public sector bad’, or the opposite. 

In a recent paper I authored for CentreForum, we found that whether a service is delivered in the public or private sector is not the important factor in success or failure. Drawing on case studies, we identified factors common to public and private sector service providers alike that had been responsible for success or failure. 

Reasons for failure 

Sadly, there are numerous examples of public services failing – both in-house and outsourced. 

One public sector case study was the UK Borders Agency (UKBA), which was set up in 2008 to get a better grip on immigration administration. UKBA was scrapped five years later because of a continued backlog of cases (310,000 cases by 2013), lack of clarity over migration figures and a “closed and secretive” culture, which resulted in performance that home secretary Theresa May dismissed as “not good enough”.  

One of the examples of outsourcing failure was the 30-year contract that Transport for London let to the Metronet consortium for infrastructure modernisation of the London Tube in 2003. Four years later, Metronet had entered administration, leaving the taxpayer with losses of up to £410m.  

The reasons for failure were similar. 

Managers did not have access to good quality information about performance, and outputs were not always clearly defined, so managers could not take steps to improve things until it was too late. Risk assessment and risk management were weak. Much was left to chance by managers in both cases, with Metronet’s operations something of a ‘black box’ to its government client. UKBA management failed to roll up their sleeves and fix failing processes and procedures, and their lack of understanding of how badly the agency was performing, and what needed to change, contributed significantly to the agency’s poor performance. 

Success 

There are many examples of successful delivery of public services, but, unlike failures, they do not usually hit the headlines. 

We looked at the Department of Education’s outsourcing of administration of the Teachers’ Pensions Agency to Capita, which achieved the targeted cost savings of 40% while at the same time improving service quality significantly. It had previously taken two weeks to answer members’ queries, but the response time was reduced to a matter of minutes under the outsourcing contract.  

In the public sector we were impressed by the performance of Directly Operated Railways (DOR), which stepped in to run the East Coast Mainline when the National Express franchise collapsed in 2009. DOR was rated as ‘Best in Class’ against many quality measures and most efficient rail franchise by the Office of Rail Regulation.  DOR made significant franchise payments back to government – £203m in 2012-13, the highest for any single franchise. 

Common causes for success 

Again, we found that the reason service providers had succeeded was common across the public and private sectors. 

Each of the services was well-managed, using appropriate information and performance indicators to assess productivity, quality and customer feedback. The threat of competition was a factor in motivating good performance in both cases, since there were other qualified suppliers who could administer teachers’ pensions or operate rail franchises. The size and scope of the services was also manageable and specific, focusing on required skills and capabilities which were clearly defined. 

We identified some lessons for commissioners of public services from our findings. 

Although public services are often very large in scale, this does not mean they should be designed to be unnecessarily complex. The service has to be clearly defined, with sufficient timely information about performance available to managers who are prepared to act if necessary. 

Commissioners need a critical understanding of how alternative service providers propose to deliver value – this must never be left to trust, or thought of as a ‘black box’. Other key factors include appropriate governance structures, a realistic assessment of risk allocation and a good understanding of the market for service provision.

Ideological approaches that vilify public or private sector providers are lazy, based as they are on wishful thinking or prejudice. It takes hard work and getting into the detail to understand public services, who is in the market to deliver, and what makes for success. 

Unfortunately the most wasteful aspect of ideological prejudice is that past lessons do not get learned – the same mistakes are made over and over again. 

Recommendations of the report 

1. Require commissioners to conduct regular ‘fundamental evidence-based reviews’. We propose that these reviews are undertaken by commissioners, analysing their own services. This activity is distinct from the external reviews undertaken by bodies such as the National Audit Office on behalf of Parliament. Commissioners should review the value for money and effectiveness of all public services periodically – at least every five years. This should be a demonstrably evidence-based review of effectiveness asking the following questions: Is the service still needed on the basis of public policy and citizen needs/wants? What are the lessons from past performance? Are there better ways of delivering the service, given technological changes and lessons learned from elsewhere? What is the scope for comparing in-house provision with external options through competition? 

2. Publish all fundamental evidence-based reviews. All reviews should be published and demonstrate a thorough, evidence-based approach. Where the service is not opened up to competition the rationale should be clearly stated. Reviews should be signed off by ministers for central government, and by elected representatives for the wider public sector.
3. Break down large, complex services into smaller, manageable work packages. Many projects are too large, bespoke and complex, which limits competition. Large, complex services which fail have large impacts. Smaller packages of focused work are easier to manage if they fail. 

4. Commissioners should demonstrate that they have understood what in-house provision will involve and cost. The principle of ‘diverse and innovative providers competing to raise standards’ enshrined in the Open Public Services White Paper is not being applied consistently. Particularly in central government, in-house options have been ruled out without sufficient analysis and evidence – or, even worse, against available evidence, as in the case of some rail franchises. 

Report extract: Structural differences between public and private sector delivery 

Commissioners should take make-or-buy decisions on the basis of the evidence in each particular service. That said, they should also weigh up some more general structural differences between in-house public sector providers and prospective external service providers and evaluate how these factors apply in each particular case. 

The in-house public sector provider may have certain structural advantages and characteristics. The government’s cost of capital is lower than that of the private sector, particularly when risk premia are factored in. There may also be more subtle advantages enjoyed by in-house delivery teams. These include: experience of making trade-offs between different objectives, which are difficult to quantify in monetary terms, taking account of unpredictable and changeable public opinion and adapting to changing political priorities; the ability to operate flexibly as requirements change without having to make costly contract amendments; having staff who are motivated by a public service ethos as well as professional pride.

Outsourced providers may also have advantages. In a previous paper we compared and contrasted the performance of government research laboratories which were either fully government operated, government owned/contractor operated (GOCO) or fully privatised. We found that those organisations which had been contractorised or privatised identified a common set of constraints which, to a greater or lesser extent, had hampered their performance when they were publicly owned and operated bodies. Removing some or all of these constraints was seen by these organisations as key to improving their performance. 

The constraints we identified were: 

• Speed/clarity of decision making – Public sector decision making can take much longer than in the private sector. This is because of the need to satisfy multiple stakeholder groups, complex procedures and a risk-averse culture which can spawn ‘paralysis by analysis’.
• Freedom from operating constraints – Government bodies frequently impose restrictions on certain activities and areas of spend (e.g. marketing, advertising, travel etc.), which restrict freedom to operate.
• Culture of continuous improvement – The best outsourcing companies demonstrate a high level of customer focus, ability to balance risks without undue risk aversion and commitment to continuous improvement. This may contrast with public sector providers who lack customer focus and exhibit undue risk aversion and secrecy.
• Low overheads – Fewer layers of unnecessary administration and access to economies of scale in support services can lower private sector outsource providers’ overheads.
• Access to capital – It can be difficult for public sector organisations to gain access quickly to the capital funding they need for operational innovation, given Treasury rules and cumbersome decision-making processes.
• Access to industry best practices – The best private sector contractors have often unique access to industry best practices and expertise, honed in a competitive environment. This can make or break projects such as delivering an operational capital asset on time and to budget. 

Weighing up all these factors, commissioners should record as much evidence as is realistic in the timescale to justify their judgement. This is essential to ensure that there is clarity about how the chosen route will provide the greatest value.

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