How can councils manage the risks posed by outsourcers?

The recent liquidation of Carillion has brought fresh scrutiny to local authority use of outsourcers. However, experienced procurement teams and risk managers have decades of understanding on how to access the benefits of external contractors while effectively mitigating some of the risks posed.

Local authority use of outsourcers such as Carillion or Capita allows access to specialist expertise and scale. However, council-outsourcer relationships are often driven by the need to find new ways of delivering services more efficiently in the face of immense pressure to cut costs.

An effective risk management approach will start the tender process with a focus on what is required to provide good quality services rather than just costs constraints.

This kind of risk-based approach to tendering will begin with questions such as whether you can be sure of the quality of work a contractor will undertake or see similar work and talk to their former clients. Crucially, this list of questions should include examination of the organisation’s financials – is the contracting company financially stable?

Often a contractor’s approach to insurance provision and risk management arrangements can be a useful indicator of the underlying stability of the organisation. Have you asked them if they have sufficient insurance limits in place? Are their working practices as good as they could be? How will they monitor these practices through the term of the job?

At Zurich Municipal, we regularly advise our customers on the right questions to be asking to shore up the tender process and fortify local authority risk management of contractors.

The recent news that Northamptonshire County Council have deployed a section 114 notice preventing all new expenditure in order to deal with a projected £21.1m overspend for 2017/18 serves to underline the funding challenges many local authorities are dealing with.

Zurich Municipal’s recent CEO report ‘Why are we here’, examined how council leaders across the country are innovating to deal with these challenges. Although the report found that commercialisation is on the rise, the use of external contractors continues to offer a cost-effective way to deliver services and particularly, as an effective way to deal with rising funding pressures. Local authorities can safely access the benefits of external contractors as long as a risk-based approach is used to mitigate some of the dangers posed. If you don’t ask – you don’t know – and the last thing anyone wants in an expensive contract is uncertainty.