The outsourcing of public services has risen rapidly up the political agenda in recent months. This is in part due to Capita’s plummeting share price and the collapse of Carillion – two companies whose fortunes are very much reliant on the public purse, and vice versa.

The damning verdict of the joint report recently published by the Work and Pensions and BEIS committees was that Carillion was beset with a rotten corporate culture. Committee chairs, Rachel Reeves and Frank Field, rightly took the board to task for their individual failings which led to the company’s collapse.

However, we mustn’t let such proclamations distract from the broader issues at play. Nor should we, if a council or charity suffers the same fate, dismiss this solely as a result of mismanagement, though this of course may have been a contributing factor.

Challenging the prevailing ideologies of scale and competition in our public services

It was back in 2012 that Locality first started pointing out the ‘diseconomies of scale’ in public services. The coalition had recently published its Open Public Services White Paper, which allowed almost all public services to be opened up to competition from the private and voluntary sector.

In the following years, we saw a resulting tendency towards scale: services bundled up into mega contracts delivered by large outsourcing companies or big national charities.

However, this trend was also accompanied by an increase in what we call ‘scale fail’. These are situations where big contracts going to big companies have ended up delivering poor quality services or gone spectacularly wrong and ended in expensive legal proceedings. We must ask whether it is the system itself that is perpetuating these instances of collapse.

This is especially important when thinking about the person-centred services that locally-rooted charities and community organisations are so well-placed to deliver.

Scale, monopoly, and a lack of competition within outsourcing markets

Markets where outsourcing may be appropriate – from IT to construction – need to be reformed to work more closely with small specialist providers. Outsourcing giants are highly successful middle men – who have become specialists “simply in winning public contracts, rather than actually in delivering public services” – that need cutting out.

Others, including the IPPR’s Grace Blakely, have written at length on how this might be done, how these markets have tended towards monopoly and how this is shutting out genuine competition from smaller providers.

In response, Preston council has demonstrated how local authorities can take matters into their own hands in order to drive local economic development and support innovative small and medium enterprises in the city.

Some services aren’t suitable for large-scale competitive tendering

Let us consider this dynamic and how it relates specifically to ‘person-centred public services’ – from homelessness to employment support, children’s services to adult social care – which are largely commissioned at a local authority level.

Community organisations are a crucial source of experience, expertise and wide-ranging support in the provision of such services. However, as our Keep it Local campaign makes clear, they are often shut out from contracts.

This is due to the bundling up of services into big contracts for which they don’t have the capacity, income base or bid-writing expertise to compete. The ‘competitive commissioning market’ is actually shutting out competition from smaller, community-based organisations.

As a result, in recent years an increasing number of large companies or big national charities are delivering these kind of services, when local community organisations have so much additional to offer. They know the place and the people. They are committed, passionate and there for the long-term. They are adaptable, cost-effective and responsive.

How scale is failing local councils

A scale approach has been particularly prevalent at local authority level. Councils have borne the brunt of public spending cuts, and have sought a way out of this – and rising demand for services – through scale and standardisation. Whilst national examples of ‘scale fail’ have attracted public attention, there are countless other instances at a local level.

The New Statesman published a list of ‘spectacular council outsourcing failures’, including Somerset County Council’s £5.9m to settle a contract dispute with an outsourcing partnership; or the £7.7m Bedfordshire County Council had to pay to terminate a ‘deeply unsatisfactory’ outsourcing contract.

Privatised trees and protests in Sheffield

Sheffield’s ‘Streets Ahead’ contract with Amey is another outsourced contract which has caught the public attention, in part due to absurd knock-on effects. The contract “has serious implications for the city’s 36,000 roadside trees, which have in effect been privatised until the late 2030s.”

Once dubbed ‘Europe’s greenest city’, Sheffield has lost 5,000 trees in recent years, leading to protests across the city and interventions from Environment Secretary Michael Gove. Sheffield is locked into this contract for the long term as anger and pressure mounts.

Social care – local government’s largest outsourcing ‘market’

The TUC identified social care as the largest ‘market’ of local government outsourcing. Indeed, this is a sector in which there has been failure after failure. Social care expert, Nick Hood, believes that “a third of Britain’s 5,500 care providers are at risk of failure”.

The failure of companies providing social care in Widnes and Gloucestershire led to council bailouts and the uncovering of further evidence of substandard service – such as faulty fire-alarms in the Millbrow Care Home in Widnes.

Four Seasons, a large care provider delivering local authority contracts up and down the country – which ran Millbrow – is saddled with £500 million worth of debt. Experts worry they could face the same fate as Carillion, with huge knock-on effects for the 17,000 elderly people resident at its care homes.

Are local authorities beginning to rethink ‘scale’?

As local authorities experience ‘scale fail’, in both services for residents and back-office functions, we’re seeing many councils think again – through bringing some services back ‘in house’, and taking a different approach to commissioning, which draws on the strengths of all sectors for the benefit of a place.

Where once councils believed the bundling up of services simplified management processes and delivered economies of scale, they are beginning to think again and shift their practice.

They recognise that spreading risk over a greater number of smaller contracts; avoiding being locked into a large contract for a long period of time; and working more collaboratively with local providers, are all ways in which they can achieve better services.

Seizing the momentum: join the Keep it Local Network

We need to seize this moment to forge a new direction. By unlocking the power of community, commissioning can create better, more responsive services that reduce long-term costs and invest in the local economy. So Locality has joined forces with Lloyds Bank Foundation for England and Wales, to launch a Keep it Local campaign.

A new Keep it Local Network will bring together councillors, commissioners, community organisations and policy experts, to support new approaches to the commissioning and funding of local services and organisations.

It will support councils to move beyond large-scale, top-down procurement approaches, to instead harness the “power of community” through simpler, more proportionate funding arrangements.

If you have an interest in finding innovative ways to reshape local services, join the Keep it Local Network and let us know.

Join the Keep it Local Network