Outsourcing Contracts Require Changes

Four out of five public sector outsourcing contracts have to be renegotiated, research by management consultancy PricewaterhouseCoopers has found.

PwC looked at 250 public sector outsourcing contracts with an average value of £170 million ($412 million) and interviewed more than 40 senior level contract managers, as well as six outsourcing providers.

The survey revealed that more than 80 percent of public sector respondents had found it necessary to amend outsourcing contracts after they had started in order to achieve the desired outcomes.

The research also highlighted frequent disputes over contracts, with more than 40 percent of respondents involved in specific dispute with their service provider. But disputes were usually resolved to the satisfaction of the public sector client, the research found, with around one fifth of respondents using mediation or legal advice to resolve disputes.

PwC urged public sector organizations to anticipate the likelihood of change and build mechanisms to ensure flexibility into contracts, along with exit provisions. Just 5 percent of those surveyed said they had a detailed exit plan.

PwC partner Roger de Montfort said: "With the public sector's increasing drive towards efficiency and the achievement of more effective spending, public sector contract managers need to focus on better planning in the pre-contract signature phase, building sustainable relationships with their providers and managing the change that is inherent in an outsourcing contract."

Two-thirds of respondents said they believed outsourcing helped the public sector achieve its anticipated benefits, citing reduced costs, higher service levels, improved customer satisfaction and better risk management.

But PwC said the survey showed more needed to be done to improve both working relationships and the outcome of the contracts.

The management consultancy noted that more than half of survey respondents cited value for money as the most important single factor in choosing suppliers, but levels of satisfaction with the value for money provided were significantly lower.

In contrast with the commissioners' view, suppliers believed the most important factor for their selection was their track record and experience of similar projects, with value for money rating low on their reasons for being chosen.

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