The left are having a field day in traducing the concept of contracting-out as if, somehow, the failure of G4S to deliver its Olympic contract was some kind of slam dunk. It is curious that one does not hear the same voices raised against the use of public sector in-house teams in relation to the queues at Heathrow airport’s immigration desks.
In many senses, the obvious failure of contractors in situations such as the G4S Olympic contract, and in the welfare-to-work schemes, is a sign of the success of the whole idea. When government services provided by in-house teams fail, non-delivery is brushed under the carpet. Poorly performing schools linger forever; disorderly prisons fester; job centres do not get people back into work; and so on. When the G4S contract was granted cash was handed over; G4S failed to deliver on the contract; they paid up; and their share price tumbled. Everything was above board and transparent.
Contracting-out can lead to huge efficiency gains, transparency and better performance management. Politicians complain about principal-agent problems between shareholders and directors in companies but the worst principal-agent problems are all in the public sector. If my children’s local state school is not cleaned properly, there is no effective mechanism to hold the people ultimately responsible – the politicians who run the education service – to account. It is too easy for management to let slack practice continue. Contracting-out of a service that can be well defined so that the contract can be easily written and supervised can alleviate these problems and, through the processes of competition and innovation, reduce costs significantly.
But this does not mean that contracting out is always and everywhere the best solution. PFI and PPPs have been a particular fiasco. No business contracts out all its functions, so why should it be efficient for the state to do so? The government is normally poor at providing services, so why should it be necessarily good at managing contractual relationships? In many cases, once government lawyers get hold of the contracts, hugely inefficient and complex arrangements are developed which often do not offload risks and costs to the private sector in any case.
In most cases, contracting-out of a service is a second best to privatisation. We do not need complex PFI schemes to build roads and schools – we need private roads and schools. However, there will always be some situations where the government continues to provide services and we should not allow the G4S fiasco to stop the use of contracting-out. To repeat, in that situation the contract was clear, the problem identified, G4S has taken a hit and life will move on. Just because contracting-out does not lead to perfection does not mean that it does not provide substantial benefits. If you are reading this in a queue to get through immigration at a London airport, you will know exactly what I mean.
Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.Tags: Olympics, UK politics