Outsourcing can benefit public sector

The principles of outsourcing applied by the public bodies should be the same as when procuring non-core services in the private sphere, experts say.

Illustrative stock photoIllustrative stock photo (Source: Jana Liptáková)

Choosing the appropriate form of outsourcing non-core services in the public sector may save time and money, while allowing for greater focus on more important tasks. Moreover, it may benefit the sector by offering them knowledge and innovative technologies from other industries, experts on outsourcing say.

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The Slovak Spectator spoke to Matej Bošňák, managing partner at Ernst & Young in Slovakia, and Ivo Doležal, partner at PricewaterhouseCoopers Slovakia.

The Slovak Spectator (TSS): Does it make sense to utilise outsourcing also in public administration? In which areas would its potential be fully used?
Matej Bošňák (MB):
The main objective of outsourcing is to “free” a company, either a private or a state one, of activities that represent an excessive burden for it. Outsourcing is a tool to reduce costs and increase flexibility, that helps secure the processes which the company cannot manage on its own at the level required. This means that the processes, which burden it from the viewpoint of finances, administration, staff or time, are separated from its core activities (for example, transport, accountancy or supporting IT services).

Regarding public services, the aim of outsourcing is to simplify the processes, but sometimes also the organisational structure. In public administration we can use outsourcing to make communication between the public and the authorities more effective, which may then result in increased trust in the respective institution.

Ivo Doležal (ID): There should not be any major difference between public and private sector outsourcing of non-core activities. Any subject should focus on their core activities and if there is someone else, who can deliver non-core activities in a more efficient way it is better to outsource them. Private sector enterprises do not usually want to build their competencies in the cleaning services, facility management, food services or physical security of their premises, that is the reason why they outsource these services. The same rule also applies to the public sector. The civil servants should focus on the provision of quality services for citizens and seek cost savings from outsourcing non-key activities to specialised service providers in transparent tenders.

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In addition to this traditional reason for outsourcing, a new trend has emerged in the private sector in recent years – the companies are trying to procure innovations. The brilliant innovative minds within the new generation workforce do not dream about a corporate life, instead they prefer establishing their own start-ups, participating in hackathons, etc. I personally believe that public sector entities should also start thinking about procuring innovations or outsourcing research & development activities.

TSS: What may be the main contribution of outsourcing to the public sector?
Currently there are many quality specialised providers in the market. Thanks to their specialisation the costs are lower than if the respective organisation tried to secure them on its own. The appropriate form of outsourcing saves time and also money – of course, only if the fees agreed upon in a contract are final and also include hidden costs.

Except for improving its own reputation, the public body also obtains knowledge, skills and technologies that would otherwise be inaccessible for it, not to mention the improvement in the quality of managerial and other processes. The public will surely perceive greater flexibility compared with the rigid bureaucratic approach and will certainly appreciate the higher quality of provided services.

ID: I see two main benefits in public sector outsourcing – the leaders should not be distracted with non-core activities and should get more time and resources to focus on their core functions, i.e. providing better services to their citizens. Outsourcing can also bring best practice and innovative solutions from other industries into the public sector.

TSS: Where are the potential risks in using outsourcing in public administration?
Outsourcing of services must be preceded by quality preparation along with a comprehensive analysis of needs, which has to contain proper scrutiny of the future supplier. The selection of a provider is much more important than the price of the expected service. It is necessary to focus on its reputation including expertise and practical skills, but also on reliability and flexibility. Not to forget a transparent approach and the ability to offer highly specialised services (like dealing with sensitive documents).

Though trust is important for outsourcing, as it is a basis for a successful cooperation, the regular inspection of work and communication about expectations should be fundamental.

ID: Like with anything in public sector procurement, the key danger is corruption, conflict of interest and lack of competence in running the procurement processes, which can lead to buying overpriced services of inferior quality.

TSS: What should be done to prevent murky practices when outsourcing services for the public sector?
The basic condition of beneficial outsourcing is transparent selection within the public procurement, which should first of all take into consideration the quality criteria, the importance of which in many aspects tops the price of services. Also a proper analysis of needs is important, similarly to precise constant reviews of procured services.

The success of outsourcing lies in in-depth evaluation, comparison and consideration of future impacts that do not seem to be isolated in the context of public administration and that may negatively impact a broader segment. An ad hoc approach to outsourcing is highly risky, which is even truer for the public sector.

ID: Transparency is key, but it should be used wisely. Making all information available to the general public is not the answer. As in contrast it can harm the healthy competition. The most important principle is the accountability of the managers buying the external services. They should be able to justify what they need, they should set the right quality criteria, properly estimate the volume required and why they need to procure the services externally. Running price only auctions can be efficient for buying commodities, but for more sophisticated services and solutions it usually leads to wasting money on something, which does not add value.

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