A new approach to outsourcing and procurement

A report published today is recommending a new approach to outsourcing and procurement at Southwark Council.  Proposals include introducing an in-house "preferred provider" policy, a target for creating local jobs and apprenticeships with council spending and greater protection for the workforce.

Southwark’s Overview and Scrutiny Committee (OSC) is publishing an investigation into the council’s approach to commissioning, procurement and outsourcing. You can see the full draft report here.  Changes will be made to this following our OSC meeting on the 19^th January where the committee will discuss the draft.

This is a huge issue.  Southwark Council’s register of contracts with external organisations shows 220 different contracts for goods and services.  That accounts for a total contract value of £2.6 billion.  A huge range of services, from the building of new schools to employment support services to homecare for vulnerable residents, are procured by the council.  Decisions about when to outsource and who gets the contracts have a big impact on the lives of people in the borough.  

Southwark has had more than its fair share of outsourcing and procurement controversies in recent decades, some of which have led to serious and prolonged reductions in service quality and wasted taxpayers’ money. Our aim as a committee is to make recommendations which stop this from happening again in the future.

Labour has made taken some big steps forward on this issue since 2010, signing up to the Ethical Care Charter, introducing a Living Wage and ending several underperforming contracts.

Yet, commissioning services in Southwark still needs to be more transparent, subject to greater democratic control and more engaged with what service users want. The council also needs to take more advantage of its spending power to promote equality and fairness. 

We’ve made 20 recommendations in all and I've highlighted a few of these below:

1.      In-house as “preferred provider”
Due to the risks associated with outsourcing large-scale services, the draft report calls on the Cabinet to introduce a policy of in-house as the “preferred provider”, similar to the NHS preferred provider policy operated when Andy Burnham was Health Secretary.  This would not mean that Southwark would cease to outsource services.  Instead it would mean that the possible benefits of outsourcing, where it was considered appropriate, would need to be properly investigated and evidenced.

2.      “Gateway zero” reports for all large scale commissioning processes
(Apologies in advance for the jargon here!) A Gateway 1 report is a document published by the council which sets a procurement strategy. If you see a Gateway 1 report, you know a decision has been made to outsource a service (or to continue an outsourced arrangement).  To ensure a decision to change the way a service is delivered is made with appropriate input from Cabinet, elected members, staff , service users and residents the draft report recommends a new standard report, prior to Gateway 1.  This would need to make the case for the preferred mode of delivery – in-house, private sector, CVS sector, shared service etc.  A Gateway zero report would also ensure that the broad methods by which a service is to be delivered (e.g. single provider/framework of providers etc.) could be discussed before a particular approach becomes hard to unpick. We recommend these should be reserved for high value services and would exclude capital investment works.

3.      Lower Contract thresholds
In other London boroughs the thresholds for officers to be able to approve procurement decisions are significantly lower and Cabinet Members formally sign-off more decisions.  Evidence is presented in the report showing that Southwark is out of step with the thresholds for other London boroughs.  The report recommends lowering the threshold levels to improve oversight of this spending.

4.      Using the Public Services (Social Value) Act 2012 – Jobs and apprentices
More should be done to encourage social benefits derived from our procurement activity. The draft report recommends setting targets for the number of apprenticeships and the number of jobs created by each £1 million of our procurement spending.

5.      Using the Public Services (Social Value) Act 2012 – other social clauses
The report recommends other social value issues which could be introduced in Southwark’s tendering processes.  They are:

• Disqualification of bidders who have engaged in trade union black-listing (and have shown no commitment to ensuring this does not happen again in the future).
• Disqualification of bidders for licensed premises (Park Café’s etc.) not prepared to sign up to Southwark’s Women’s Safety Charter
• Flexible working and family friendly policies
• Training and development of staff
• Environmental considerations

6.      Standard contract clauses
To improve scrutiny and monitoring of contracts, the draft report recommends introducing the following contract clauses for all contracts:

• Prompt payment of sub-contractors
• Adherence to Southwark’s whistle-blowing policy
• Open book audits of contract accounts on request
• ‘Termination at will’ clauses
• Openness and transparency in the event of termination – allowing us to explain to residents why a contract has been terminated.
• Attendance at council committees such as Cabinet or scrutiny by contractors on request
• Break clauses allowing Southwark to conclude a contract should the ownership of contractor change during the life of a contract.

7.      Openness and transparency for contracts
Procurement is often shrouded in unnecessary secrecy.  To counter this all contracts signed by Southwark Council with external contractors should be published in full online with a link from the contracts register.  In those exceptions where commercial confidentiality is considered an issue, partial redaction could be used.

8.     Protecting the workforce
When the council renews contracts or outsources services to the private or voluntary sector as a minimum the following workforce provisions should apply:

• Access to the LGPS
• Trade Union recognition agreements
• London Living Wage
• Payment of sick pay
• Appropriate training
• Defined hour contracts without unreasonable “availability clauses” (i.e. no zero hours contracts)
• Free access to personal protective equipment
• Guarantees that TUPE terms and conditions will last for the term of the contract

9.      Social Value: Gender Pay Gap and Pay differentials
The report recommends that the Cabinet sets a threshold for both the employee gender pay gap and pay differentials (the gap between the lowest and highest paid) for organisations to qualify to provide services on our behalf.

As I say, the report is still in draft form and subject to consultation.  If you want to make any further suggestions, take a look at the report and email me at gavin.edwards@southwark.gov.uk  

Once we've agreed a final version of the report it will go to Southwark's Cabinet for a response to the recommendations.