Lifecycles of public sector markets

Speaking at a recent European conference on remunicipalisation of public services set me thinking about the lifecycles of markets and how they can go full circle.

I was asked to give a presentation based on APSE’s research publications into why so many UK local authorities, of all political persuasions, are insourcing services on a significant scale. This has accelerated significantly over the past five years and the main factors cited are usually value for money, poor customer satisfaction levels and a failure to deliver on promises that contractors had made.

In over 100 case studies APSE’s researchers examined, ranging from large-scale strategic partnerships to individual service contracts, members and officers tended to have been through a similar process. They started out being highly supportive of newly let contracts with new ‘partners’, continued that support even when it became clear it was failing to deliver, had serious negotiations in an attempt to remedy the situation, and then ultimately lost faith and decided the only way to deliver the service effectively was to bring it back in-house.

So what was happening in the 20 other countries represented at the conference? Well, this appeared to vary based on the stage of market development in public services. In France and Germany, like the UK, where well established markets have existed for at least 30 years, major insourcing is occurring around the creation of public sector energy companies and environmental contracts. Scandinavian countries showed similar patterns. Newer markets such as Lithuania and the Ukraine understandably had least insourcing, although they are already identifying classic public sector market characteristics of consolidation of providers and increasing prices for end users.

The significance of this for UK local government is that insourcing is a significant trend and one that is likely to continue within the existing public services market. Indeed, in the last two weeks London boroughs have begun insourcing three separate contracts. This is also something that needs to be considered and factored in to any new contracts being awarded.

With initiatives such as the Community Right to Challenge likely to create further outsourcing, either to an immature third sector market, newly formed employee mutual models or more likely to private sector providers once a procurement process is triggered, I would predict this will lead to a much greater degree of insourcing in the future, as significant problems emerge at an early stage of this new cycle.