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Doing Outsourcing Projects Differently in the Public Sector

  • United Kingdom
  • Outsourcing and offshoring
  • Public


The Issue

Typically, Outsourcing Projects take a long time to procure and deliver. This can be bad news for both the public sector and the supplier

Often, there has been a mismatch between what a public sector body thought that it was buying and what is ultimately delivered.

Often, it takes longer.

Often, it costs more.

Often, there is dissatisfaction.

In a fast moving environment, this can be disastrous. This is particularly the case with digital services where technology is moving very fast. Here, the Government has now recognised that agile approaches must be adopted when managing projects for the delivery of digital services. This is because the traditional waterfall approach of defining all requirements up front before moving through fixed phases of design, build and delivery result in the delivery of solutions which meet requirements that were relevant 18/24 months before the actual time of delivery.

Clearly, where both technology and Government policy are moving fast, this will not work and new ways of developing and delivering services must be found. In all of this, whilst IT systems and outsourced services must be robust and compliant with all regulations, flexibility is now key. For example, with the advent of smart phones and tablets, the ways in which Government can connect with citizens and the way in which citizens expect to be able to communicate with Government are changing fast. For these reasons, the contracts which Government enters into with suppliers when services are outsourced must also be able to flex easily as new ways of doing things are developed. The question is how this can be best achieved whilst, at the same time, protecting the public purse and ensuring compliance with procurement law.

Understanding the phases of an outsourcing

All outsourcings involve:

  • the transition of the responsibility for providing a service from a public sector body or an incumbent supplier to a new supplier; and
  • the provision of the service from the service commencement date for the term of the contract.

In addition, most outsourcing projects involve a transformation phase pursuant to which the supplier will implement changes to the way in which the services are delivered so as to meet the requirements of the public sector body which are set at the time of the procurement being advertised.

Historically, both the transition and transformation elements are contracted for on the basis of fixed requirements and/or a fixed solution which, from the perspective of the public sector, is delivered against fixed milestones for a fixed cost. This should still be the case for the transition phase as the transition of all “business as usual” services still have to happen on time. However, as explained above, this so called “waterfall” approach can cause difficulties for transformation because the process of delivering an end to end solution to meet the initial requirements usually takes years. Clearly, when technology and user expectations are moving fast, this can be disastrous.

Learning some lessons

The implementation of digital services and new technology always involves the development and/or configuration of new software. In this world, “agile” methodologies are enabling software to be configured and developed in bite size chunks which can be called off and implemented quickly from a flexible list of potential requirements. This means that suppliers are commissioned to deliver specific solutions to individual requirements on a case by case basis rather than as one big project.

As with software development, the transformational aspects of an outsourcing can be developed incrementally as follows:

  • create a list of project requirements – the Backlog;
  • call off requirements from the Backlog to be developed case by case – Sprints;
  • the public sector body only commits to commission new requirements on a requirement by requirement basis;
  • working software is created incrementally – often iteratively via the use of joint teams;
  • the public sector body can flex the order in which items are delivered;
  • the public sector body can delete or add requirements from the list; and
  • overall project budgets can be set alongside budgets for individual Sprints.

The Result - flexibility

The same approach can be applied to any outsourcing project in relation to the transformation phase. In addition, assuming that a development fund can be agreed for each year of the contract, an agile approach can be applied all the way through an outsourcing contract rather than by managing a clunky and expensive change control process. This helps to keep the outsourced services contract fresh throughout its life which will benefit both the public sector body and the supplier assuming, of course, that this way of delivering service complies with the way in which the public sector body procured the services at the outset of the applicable procurement. Designing the procurement process and documentation correctly to enable this flexibility will be important.

How does it work

A contract can therefore be structured as follows:

  • Transition – procure the transition of the service to the new supplier as a traditional project – the whole transition needs to be completed quickly and on time.
  • Transformation – instead of doing transformation as a traditional waterfall project, apply agile methodologies to:
    • ensure that the most urgent things are done first;
    • ensure flexibility as things change; and
    • apply the approach through the life of the contract to keep the delivery of the outsourced service fresh.
  • In terms of structuring such contracts, the customer can commit to spending a minimum budget on known transformational requirements whilst accepting that the actual budget and timelines for specific items need to be discussed and refined as individual items are commissioned. The resulting charges can then be smoothed over a contract year and can be added to a monthly operational service charge for the main outsourced services. In particular the customer will ideally want to ensure that:
    • the contract contains “clear, precise and unequivocal” review clauses so that any modifications to the contract in terms of scope or price comply with procurement rules without a wider assessment and justification being needed under the public procurement regulations; and
    • appropriate protections are included to mitigate against the risk of the contract becoming unaffordable or expected savings not being achieved, perhaps through appropriate supplier warranties or incentivisation mechanisms.

The Impact

In procuring contracts which are dependent on technology on the basis of an agile approach, the public sector can ensure that:

  • key contracts are structured so as facilitate the delivery of what the public sector body needs for the life of the contract;
  • the benefits of adopting new technology can be realised more quickly;
  • services can be delivered more efficiently;
  • better value for money can be achieved;
  • the expectations of citizens can be satisfied more quickly
  • local solutions can be adopted as part of wider projects
  • popular and useful services can be delivered more quickly