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Outsourcing failures expose weaknesses in both government and business

The problems of dealing with private sector providers and contractors are a persistent theme in the analysis of government shortcomings. For example, recent Australian National Audit Office reports highlighted contracting problems in Air Services Australia, the Defence Department and the Immigration Department. Contract management issues were at the heart of last year’s failed online census and have been a constant factor in the turbulent administration of Australia’s controversial offshore detention centres. Over-reliance on contracted consultants was a major cause of the botched home insulation scheme.

Given the extent to which governments rely on private contractors for a large range of goods and services, it is unsurprising that contractors are often in the frame when things go wrong. But many of the

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A common complaint is that the use of contractors has caused agencies to run down their in-house expertise and technical resources. As a result, it can be argued, agencies lack the capacity to assess whether the contracts they are agreeing to give the government and taxpayer adequate value for money. Without their own professional judgment, grounded in technical knowledge and practical experience of the area in question, public service managers are ill-equipped to decide matters of all-round quality. Instead, they tend to fall back on generic checklists of assessment criteria that emphasise easily specifiable factors, such as cost and timeliness.

Alternatively, if funds allow and time permits, they may contract in an external consultant or commissioner to give an expert opinion on a proposed contract. But such advice carries the risks of perverse incentives attached to all forms of external contracting and consulting. The consultants’ objective is to gain future contracts, which encourages them to say what they think governments want to hear in preference to what they ought to hear. Once again, without the professional judgment to tell the difference and without their own in-house, trusted staff to advise them, public service managers are at the mercy of self-interested outsiders. This vulnerability is compounded by the lack of transparency that surrounds contracting. Overuse of commercial-in-confidence provisions has shielded public servants from the bracing effects of public scrutiny.

The lack of in-house capacity can affect not only the initial process of drawing up contracts but also the oversight of how contracts are implemented. Contracts require payments to be made in return for agreed outputs and outcomes, which the contracting agency must verify. Some contracts are easily administered; for instance, procurement contracts for identifiable pieces of equipment or service contracts for straightforward services, such as cleaning and transport. But others, particularly contracts for providing social services, require the achievement of more subtle outcomes that are qualitative and contestable in nature. For these services, governments have turned to “relational” contracts, which aim to create partnerships based on shared values and trust. In this way, contractors are relied on to exercise their professional judgment and pursue the public interest out of their own sense of commitment to the joint enterprise. Classic examples have been the contracting of church and community-based organisations to provide valuable social services at reasonable cost.

However, as the constant stream of scandals illustrates, many commercial providers are more interested in profit than in good service and cannot be trusted to do the right thing. As a result, governments are being driven to impose tighter controls and regulations. Even then, in the face of determined rorting and corner-cutting, most government agencies lack the resources to prevent opportunistic contractors from wrongfully expropriating public funds. Meanwhile, trustworthy contractors in the non-profit sector are being overwhelmed by intrusive and inappropriate controls.

After two decades of wholesale outsourcing, some general conclusions are clear. Contracting out is an efficient and effective alternative to in-house provision where the objectives are clear and easily monitored, and where there is a competitive market of alternative providers. It also works well for more complex services where providers can be trusted to pursue public-interest objectives for their own reasons.

However, where these conditions of either simplicity or trust do not apply, the risks that governments will not receive value for money start to build. Moreover, extensive experience with outsourcing has itself compounded these risks by reducing governments’ capacity to effectively draw up and monitor outsourcing contracts. Some complex service contracts that could have been safely contemplated a generation ago are now beyond the professional expertise of public servants to administer.

None of this surprises public administration academics. It is more than 20 years since Rod Rhodes wrote a seminal article in Political Quarterly titled “The hollowing out of the state: the changing nature of the public service in Britain“. Australian scholars took up the concept of the hollowed-out state as a warning about the effects of contracting-out. Other academics around that time drew attention to the difficulty of specifying objectives for complex services and to the accountability deficit resulting from transferring public services from the public to the private sector. But, like Cassandra in Greek mythology, who was cursed with the power to predict the future but never to be believed, public administration experts were ignored in the worldwide enthusiasm for privatising the state.

Where to from here? An interesting contribution has come from Gary Sturgess, Australia’s foremost intellectual advocate of privatisation and outsourcing. Sturgess has had a varied career, working for governments (notably the Greiner government in NSW) and as an author and consultant. He also spent a decade in Britain with Serco, the multinational company specialising in service contracts for public organisations, such as prisons and hospitals. He holds positions with the Australia New Zealand School of Government, the University of NSW and Griffith University.

Sturgess recently published a report for Britain’s Business Services Association, which represents major service providers in Britain (Just Another Paperclip? Rethinking the Market for Complex Services). He identifies a crisis in Britain’s outsourcing services industry, reflected in the cancellation of several high-profile contracts and the placing of other providers on notice. Some major contracts are losing money and, among five major contractors, only one has made a commercial return in recent years. Many companies are refusing to tender and are leaving the British market. Companies also complain about excessive controls imposed by governments and about the frequent turnover and lack of professional experience among the government counterparts with whom they deal. Contractors have taken over from government agencies as the custodians of corporate memory.

Without trusted in-house staff to advise them, public service managers are at the mercy of self-interested outsiders.

Britain has long been at the international forefront in privatisation and outsourcing, and its experience is therefore relevant to Australia. Sturgess’s main diagnosis is that the British government has lost sight of the key differences between the varying types of service they are buying. In particular, they are forgetting that complex ongoing services cannot be adequately dealt with by transactional contracts but require trust-based relational contracts. By treating all contracts as transactional in form, they are reducing the purchase of social and other complex services to the level of buying office supplies (“just another paperclip”). According to Sturgess, this is a relatively recent development, replacing an earlier reliance on trust-based partnerships in the outsourcing of complex services.

Sturgess’s solution is to concentrate on restoring trust between governments and their long-term private providers. Governments should give up trying to impose ever tighter controls on contractors. They should also avoid a race to the bottom in always preferring the lowest-cost tender regardless of proven record. Instead, they should be more willing to enter into ongoing dialogue with service providers with whom they can establish good working relationships.

Admittedly, Sturgess is writing for the established service providers and naturally reflects their interests in eliminating cut-price rivals and excessive government oversight. He glosses over the extent to which governments have been provoked into tighter controls by unscrupulous contracting partners abusing their trust. He is also spruiking the role played by designated contract commissioners in brokering relation between contracting parties, a role in which he himself has specialised. Even so, his analysis deserves close attention.

What is remarkable is how far Sturgess agrees with other longstanding critics of outsourcing who come from a standpoint that is more sceptical about the private provision of public services. Like them, he argues that government agencies have become dangerously hollowed out and are unable to act as effective public partners in complex outsourcing partnerships. Like them, he accepts that policy objectives often cannot be reduced to simple measurable indicators and targets. Like them, he also holds that mutual trust between governments and providers is crucial for effective service provision.

The key difference is that, whereas the sceptical critics are only prepared to trust providers from the public and non-government sectors, Sturgess also has confidence in commercial contractors – provided certain conditions are met. This approach is more likely to appeal to a Coalition government, with its close links to the business sector and its openness to lobbying from major international contracting firms.

Conservative politicians need to recognise that outsourcing complex government services requires the development of trust between the parties, which means looking beyond the short-term bottom line and not always preferring the cheapest option. In addition, successful contracting depends on well-resourced government agencies with the skills and experience necessary to manage ongoing relationships with contractors. Running down government staffing levels while relying more on private contractors is a recipe for continuing policy failure.

Contractors, for their part, must earn the right to be treated as trusted partners. They must be prepared for the long haul and willing to learn from experience. They must also be ready to submit to the level of public scrutiny and accountability that public servants take for granted. Indeed, given that the commercial private sector is not imbued with the same commitment to serving the public interest, there is a case for subjecting private contractors to more scrutiny than the public service, not less.

Richard Mulgan is an emeritus professor at the ANU’s Crawford School of Public Policy. richard.mulgan@anu.edu.au

Article source: http://www.canberratimes.com.au/national/public-service/outsourcing-failures-expose-weaknesses-in-both-government-and-business-20170426-gvsx0e.html

Workers at University of London strike to end outsourcing – Sky News

Workers demo at Senate House

Cleaners, security guards, porters and other workers want to be employed directly by the university, which they hope will give them greater security, improved benefits and the ability to better negotiate with their employers. While they are essential to the running of the university, many of them are currently supplied to the institution by an external facilities company. Work is frequently outsourced under the guise of cutting costs, and workers say they receive fewer benefits in areas like sick pay, holiday pay and pensions as those employed directly. Magdalena Chytra, who protested outside the university’s senate house om Thursday, said she has been employed by three companies in her seven years as a cleaner at the university, while security officer Omar says he’s been employed by five facilities firms during his 10 years on the job. “We feel like we’re being sold from company to company,” he told Sky News. “We want to work directly for the University of London, to be part of the University of London and have the rights that come with that.”

Both say they’ve struggled to address concerns with the university because of working through a middle company, and that conditions have become worse as contracts change hands to difference outsourcing companies. Jason Moyer-Lee, the General Secretary of Independent Workers Union of Great Britain, said outsourcing contracts often hit more vulnerable workers, such as migrants and those in jobs that are often precarious or low-paid, the hardest.

But he said he believes attitudes towards outsourcing are changing and that the collapse of Carillion has meant increased public scrutiny of the practice. “The public is becoming aware now more than ever of the massive waste, incompetence and unfair treatment of workers inherent in the outsourcing model, and the University of London is no exception,” he said.

A spokesperson for the University of London told Sky News that it had begun a review of the performance of contracted out facilities management services, and that it would be discussing pay, conditions, benefits and development opportunities with the contractors employing outsourced workers. “In common with many institutions in the sector, the University of London has a number of contracted out services,” they said. “We are aware of an ongoing industrial dispute within one of our contracted-out services. It would not appropriate for the University to comment on the employment arrangements of another organisation.”

Article source: https://news.sky.com/story/workers-at-university-of-london-strike-to-end-outsourcing-11222496

Employee outsourcing hides forced labour in the workforce, new research shows

11 September 2017

Failure to monitor outsourced recruitment is resulting in companies inadvertently employing victims of forced labour, according to new research from the Universities of Sheffield and Bath.

Interviews with experts in business, NGOs, trade unions, law firms and the police showed that while companies can increasingly trace where their products come from, many are in the dark about the backgrounds of their staff.

The research, by the University of Sheffield and the University of Bath’s School of Management, suggests that layers of outsourcing, subcontracting and informal hiring of temporary staff are to blame. This, say the researchers, enables victims of forced labour to be hidden within the workforce of companies and organisations – even those with the best intentions.

Statistics recently released by the National Crime Agency showed that the number of people reported as potential victims of forced labour and human trafficking in the UK has more than doubled in the past three years, with 3,805 people referred for help in 2016.

The researchers concluded that the key issue in tackling forced labour is understanding the labour supply chain – the often unregulated networks through which contingent and sometimes forced or trafficked workers are recruited, transported, and supplied to business by third party agents.

Study co-author Dr Genevieve LeBaron, from the University of Sheffield’s Department of Politics, said: “Leading UK companies are starting to belatedly wake up to the fact that their existing systems for detecting worker abuse simply are not fit for purpose for uncovering forced labour. But, as new initiatives emerge, the critical factor determining their success will be whether they meaningfully address the labour supply chains that feed their business.

“It is these chains that make forced labour seemingly invisible even when the workers subjected to them are right in front of us in the farms, factories and construction sites that surround our communities.”

The study showed that most incidences of forced labour were several steps removed from the core workforce at the producer company. Within the agricultural sector these employees could potentially only be on site for a matter of days or weeks, making it difficult for producers to detect abuse.

Companies thought they were able to shield themselves from forced labour because of the investment they had made in responsible product sourcing but in reality their focus on tracing the product supply chain does not equip them to easily trace where workers have come from, or the types of exploitation they have been exposed to.

One CEO of a UK hotel chain explained to researchers: “We have pretty much solved traceability of the food served in our restaurants. I can tell you the farm where the steak on your plate came from, probably even the name of the cow. But we have no idea where the workers came from that work in our kitchens.”

The workers in these kitchens may well have been supplied by unscrupulous agents who subject workers to highly exploitative employment practices, such as withholding their passports, forcing them to work for little or no pay, threatening them or their families, or tricking them into racking up huge debts through deductions for accommodation, food, transport and other “services”. Some will even have paid to get the job in the first place.

The researchers say government needs to instigate better coordination between labour market enforcement and immigration law. Currently, immigration rules create vulnerabilities among migrants that can be exploited by traffickers in ways that are difficult to police with existing labour market enforcement practices.

For companies, researchers say the study highlights that the current models of social auditing are unfit for purpose in detecting and preventing forced labour.

Lead author, Professor Andrew Crane, Director of the University of Bath’s Centre for Business, Organisations and Society, added: “Companies have little hope of detecting modern slavery practices unless they adopt a new approach that focuses specifically on their labour supply chains – they need to be able to trace the origin of their employees in the same way as most now can for their products.

“Twenty years ago most high street retailers did not have a clue where the products they sold actually came from. Since then, there has been a revolution in responsible business practices and companies have invested millions of pounds to trace the source of their products and tackle the myriad sustainability issues they found there. To prevent the misery of modern slavery from blighting our workforces companies must apply that same focus to their staff.”

The research, which received funding from the Joseph Rowntree Foundation, is published in Regulation Governance, and is one of the first research studies to examine forced labour in companies based in the UK, focusing on the UK’s construction and food industries.

Governance gaps in eradicating forced labour: From global to domestic supply chains was undertaken with Monash University Australia and Simon Fraser University Canada. DOI: 10.1111/rego.12162

Additional information

The University of Sheffield

With almost 27,000 of the brightest students from over 140 countries, learning alongside over 1,200 of the best academics from across the globe, the University of Sheffield is one of the world’s leading universities.

A member of the UK’s prestigious Russell Group of leading research-led institutions, Sheffield offers world-class teaching and research excellence across a wide range of disciplines.

Unified by the power of discovery and understanding, staff and students at the university are committed to finding new ways to transform the world we live in.

Sheffield is the only university to feature in The Sunday Times 100 Best Not-For-Profit Organisations to Work For 2017 and was voted number one university in the UK for Student Satisfaction by Times Higher Education in 2014. In the last decade it has won four Queen’s Anniversary Prizes in recognition of the outstanding contribution to the United Kingdom’s intellectual, economic, cultural and social life.

Sheffield has six Nobel Prize winners among former staff and students and its alumni go on to hold positions of great responsibility and influence all over the world, making significant contributions in their chosen fields.

Global research partners and clients include Boeing, Rolls-Royce, Unilever, AstraZeneca, Glaxo SmithKline, Siemens and Airbus, as well as many UK and overseas government agencies and charitable foundations.

The University of Bath

The University of Bath is one of the UK’s leading universities both in terms of research and our reputation for excellence in teaching, learning and graduate prospects.

The University is rated Gold in the Teaching Excellence Framework (TEF), the Government’s assessment of teaching quality in universities, meaning its teaching is of the highest quality in the UK.

In the Research Excellence Framework (REF) 2014 research assessment 87 per cent of our research was defined as ‘world-leading’ or ‘internationally excellent’. From developing fuel efficient cars of the future, to identifying infectious diseases more quickly, or working to improve the lives of female farmers in West Africa, research from Bath is making a difference around the world. Find out more: http://www.bath.ac.uk/research/

Well established as a nurturing environment for enterprising minds, Bath is ranked highly in all national league tables. We are ranked 5th in the UK by The Guardian University Guide 2018 and 6th for graduate employment. According to the Times Higher Education Student Experience Survey 2017, we are in the top 5 universities students would recommend to a friend.

Contact

For further information please contact:

Hannah Postles
Media Relations Officer
University of Sheffield
0114 222 1046
h.postles@sheffield.ac.uk

 

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Article source: https://www.sheffield.ac.uk/news/nr/forced-labour-study-1.728171

Vishal Sikka is out as CEO of Infosys as the outsourcing giant founders

Founders of well-run companies tend not to believe in luck. Commercial success to them comes from hard work and smart thinking, usually from the founder.

In time, some pass the management of their enterprises on to others, recognising a need for change. Narayana Murthy, chairman emeritus and co-founder of Infosys, did just that in 2014, appointing Vishal Sikka as chief executive.

It did not work out. Mr Sikka, the first boss from outside the outsourcing group, has resigned.

Mr Sikka has had a tough task changing a business that arbitrages the cost of tech workers in India for those in developed economies, primarily the US. He had some success diversifying into software services. But the bulk of the top line still comes from providing skilled, cheap Indian workers to cost-conscious tech companies.

Article source: http://www.afr.com/technology/technology-companies/vishal-sikka-is-out-as-ceo-of-infosys-as-the-outsourcing-giant-founders-20170820-gy04q9

Democrats call for new ‘outsourcing tax’

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Democrats are calling for harsh new punishments on companies that outsource jobs and a crackdown on currency manipulation, embracing a more populist economic agenda as they seek to win back control of Congress in next year’s midterm elections.

Senate Minority Leader Chuck Schumer of New York announced the plan Wednesday morning with fellow party Rust Belt lawmakers such as Sen. Debbie Stabenow of Michigan and Sen. Joe Donnelly of Indiana.

The program would establish the American Jobs Security Council, which would review pending purchases of American companies by foreign corporations. Schumer said the panel would have the power to block a deal if it would hurt American workers or the economy.

“Simply put, this council has the power to slam the door shut on foreign companies who want to buy up American businesses and harm our workers,” he said.

The Democrats’ proposal represents the second phase of Democrats’ new platform — dubbed “A Better Deal” — aimed squarely at the blue-collar workers that helped propel President Donald Trump to victory.

“This plan would level the playing field for American workers by ensuring our workers aren’t competing in a race to the bottom on wages and labor protections,” strategy documents state.

Democrats’ proposals include penalizing businesses that move jobs or their headquarters out of the United States. Companies would have to pay a corporate tax rate of 35 percent on any profits held overseas before relocating. Currently, businesses are able to defer those taxes until the money is brought back to the country.

Companies would also be prevented from deducting the expense of moving those jobs. On the other hand, businesses that bring jobs back to America would receive a tax credit for 20 percent of those costs.

Government contractors would face more stringent requirements under Democrats’ plan, including a public “shame list” for those that regularly send jobs overseas. In addition, the proposal would require companies that outsource to add as much as 10 percent to their estimated costs, making them less competitive.

“U.S. companies need incentives to in-source production that has already been lost and be forced to pay an exit tax when outsourcing” the documents read.

The proposal also tackles one of Trump’s favorite targets: China. Democrats are calling for a new law that would allow the federal government to impose duties on countries that undervalue their currency — a move essentially directed at China. Under the existing system, only the Treasury Department can designate a nation as manipulating its currency.

Schumer has long been a vocal critic of China’s currency and trade policies, and Democrats have traditionally been skeptical of the benefits of globalization. But Trump appealed to working-class voters — particularly in typically blue states — by breaking with Republican orthodoxy and verbally pummeling America’s largest trading partner.

Some of the proposals in Democrats’ new platform echo not only Trump’s campaign promises, but efforts already underway in his administration: renegotiate NAFTA and tighten rules requiring the federal government to buy American. The plan would also establish an independent trade prosecutor.

Democrats are set to announce the new trade agenda amid reports in The Wall Street Journal and Axios that the White House is readying aggressive new enforcement actions against China for intellectual property theft.

Trump has also recently stepped up his rhetoric against the country as progress appears stalled on a hundred-days plan on trade and economic issues while North Korea ramps up ballistic missile tests.

“I am very disappointed in China,” Trump wrote in two tweets last week. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!”

Democrats began rolling out their “Better Deal” agenda last week with vows to scrutinize big corporate mergers and bring down prescription drug prices. The platform is also expected to include proposals on the cost of higher education and infrastructure.

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