Outsourcing and Contracting-Out in Markets

In recent years there has been strong growth in the number of private sector businesses that are used to provide public services. For example the running of prisons and social care homes might be out-sourced by central and local government to private sector providers often after a tendering or bidding process has been held. This is known as contracting-out.

Arguments for out-sourcing

• 1.Opening public services up to competition can save the tax payer money

• 2.Private sector businesses more likely to achieve efficiency improvements and cost savings – leading to improved value for money

• 3.Businesses in the private sector might be more innovative, less hierarchical and less prone to suffering from diseconomies of scale

Criticisms of outsourcing

• 1.Businesses bidding to win contracts might sacrifice quality of service as a way of lowering their costs

• 2.Doubts about some employment practices of service companies e.g. low wages, poor conditions

• 3.Contracting-out / outsourcing requires proper monitoring which itself involves extra spending

Outsourcing providers in the UK

Two well-known examples of businesses that provide outsourcing services are G4S and Serco.

Serco:

This is a huge service provider: It is the biggest manager of air traffic control towers worldwide; runs border control services, hospitals, commuter transport in Dubai and London, and even the European Space Agency.

Serco is one of the largest managers of leisure centres as well as Ofsted school inspections, welfare-to-work services, community care, the Atomic Weapons Establishment and Boris bikes. There are also prisons and an immigration detention centre in Australia. Pre-tax profits in 2012 were £250m on revenue of £1.3 billion.

G4S:

G4S is the world's 3rd largest private-sector employer, G4S employs over 155,000 people in the UK and in 2012 had a turnover of over £1.6 billion. It is one of the UK government's largest providers of services such as manned event security, cash transfer and security, monitoring prisoners and custodial & detention services as part of the justice process.

Both firms have been subject to fierce criticism over the last few years. G4S for example was embroiled in the fiasco over staffing for Olympic security ahead of the 2012 London games. And in the summer of 2013, the UK government announced an investigation into all their contracts, following allegations that G4S and Serco overcharged it by tens of millions of pounds for electronic tagging of offenders.