Mark Johnson on outsourcing in the health sector

We can only hope that it will become a catalyst for further leading-edge creativity rather than being left to gather dust in the offices of the Department for Business Enterprise and Regulatory Reform, which commissioned the review.

In the report, DeAnne Julius, an economist, identifies in the UK a world-leading outsourcing industry with scope to contribute further to the economy and our global competitiveness, provided the government continues to signal a clear political commitment to a liberalised market.

She debunks some important myths. Contrary to popular misconception, she says contracting out services does not inevitably lead to cuts in terms and conditions. Citing National Audit Office research, she finds that TUPE-transferred staff have generally benefited in terms of pay from the shift to a private employer.

Recent legislative and policy developments, such as the new TUPE regulations and workforce code, have further strengthened employee rights. The key efficiency gains come from improved working hours flexibility and new systems and processes introduced by providers. From my own experience in contracting out social care services, it is remarkable how enlightened human resources policies and investment in training can reduce staff turnover and the costly use of agency workers, in one case from over 30 per cent to 7 per cent in just six months.

Waning commitment

Julius sounds a warning to government, however. The rate of public service outsourcing has slowed in recent months, in part in reaction to the government's apparent lack of commitment to outsourcing.

U-turns like with the independent sector treatment centres do little to foster investor confidence or create a stable market. Similarly, there are continuing problems with the capacity and skills in public sector agencies to run major commissioning programmes.

The report calls for all public bodies to appoint a director of service delivery at the highest level. Respondents felt that public procurement officials appeared to have little incentive or accountability for running a well-organised procurement process. Creating this new post is fine, provided the post-holder has strong skills and is incentivised by enjoying clout in the organisation.

Other barriers for private and third sector provision include poorly specified contracts, lack of a level playing field between the incumbent and the bidders or different types of service provider (for example, around tax concessions and treatment of accrued pension benefits).

This aspect is something that should be addressed by the new Department of Health competition panel - a body whose role is central to eliminating barriers. The report also highlights growing concern at the complexity and escalating costs of bidding for contracts, in particular under the new competitive dialogue procedure.

Darzi links

The Julius report comes hard on the heels of Lord Darzi's report High Quality Care for All, which stresses the need for the NHS to develop more personalised, accessible, world class services. Julius highlights the crucial role of the private and third sectors in raising the bar and achieving this goal.

Competition and choice have clearly produced innovation and cost reduction, usually in the order of 10-30 per cent, surely an attractive prospect for the government at a time of increasing fiscal discipline.

Crucially, Julius finds there is no evidence that quality declines - in many cases there is strong evidence that it has increased. One key driver of quality appears to be the autonomy and freedom of action afforded to frontline managers, as compared with in-house provision - again, something that chimes with Lord Darzi's findings.

We must hope now that government will cast aside some of the old dogmas in the pursuit of a mixed economy where all service providers are judged on their merits: then we can begin to commission public services that are truly world class.

For more on the report, go to www.berr.gov.uk