Friday, 24 September 2010

Suffolk will gain by transferring cost, not risk

The public sector is crap at valuing risk, or rather crap at understanding how the private sector values risk. So whenever they seek to outsource a service, they seek to transfer all the risk with it - with the result that the service costs more, and the private sector makes a neat profit. 

Take a really simple FM function such as window cleaning. A council building manager has a budget that will pay for having the windows cleaned four times a year, and to make best use of it they wait until the panes become fogged before calling in the window cleaner. Some years they only have to spend out three times. When writing the outsource FM spec, however, they'll introduce a performance spec that imposes contract penalties if the glass ever falls below 99.5% light transmission due to dirt, with the result that the contractor prices for cleaning eight times a year, but will try to get away with only cleaning three times a year. Mostly they'll get away with it. 

They'd certainly gain more by letting a longer term contract for a bundle of buildings and retaining the risk of dirty windows themselves, but you just can't tell some people ...

1 comment:

English Pensioner said...

The whole point is to avoid any risk of personal criticism.
I met this when I was an Engineer in the Civil Service. I wanted to let a( quite small) contact to a small company who were new in the field, but in my view were offering an excellent product at a good price. It was vetoed by those above me on the grounds that "if a small company makes a mess of the job, we'll get the blame". So it went to one of our largest defence contractors at many times the cost, because "if they make a mess of it, well we went to the biggest company in this field, and if they can't cope, it is unlikely anyone else would".
Its all about minimum responsibility and blame avoidance, not value for money.