Monday, March 30, 2020

Realising the Benefits of Outsourcing

Outsourcing (or contracting out) has for many years been at the very core of Botswana Government’s efforts to improve service delivery in the public service. Often many people confuse outsourcing with offshoring, which usually refers to the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation.
While outsourcing can and is sometimes practiced by private companies in Botswana, it is a procurement method largely synonymous with public institutions. This article, which is the first of a three way series, discusses outsourcing in public institutions as a means to enhance efficiency in the delivery of public goods and services.
Article 1 introduces the subject of outsourcing to you, the reader; from PEEPA’s perspective, article 2 will then take the reader through the structured approach to outsourcing, focusing on the four steps of implementing outsourcing. The last article will then pick a case study of the application of a structured approach to outsourcing, to demonstrate the efficacy of this approach to outsourcing.

What is Outsourcing?
Wikipedia (the free encyclopedia) defines outsourcing as the management and/or day-to-day execution of an entire business function to an external service provider. It is a contractual agreement between the client organisation and the supplier that defines the services to be transferred to the supplier.
Outsourcing became popular during the 1980s as governments the world over (particularly the United Kingdom and the United States), realized that they could tap on vast expertise and experience offered by private sector service providers to render specific services and functions that were previously provided by governments.

Outsourcing Two

The overriding motivation for outsourcing was largely to lower costs, redirect resources or to make efficient use of labour, capital, technology and other resources.

The Benefits of Outsourcing

As indicated earlier, public institutions (both at central and local government level) have consistently used outsourcing over the years to increase capacity to deliver services and to access innovative service solutions offered by the private sector. Outsourcing is also one of the methods of privatisation, depending on how it is structured, which offers significant scope for achieving the objectives of increasing direct citizen participation in the economy and relieving Government of the administrative burden of undertaking and maintaining a vast network of services.
In his farewell national address in Parliament on November 5, 2007, President Festus Mogae emphasized the importance of outsourcing as a tool that can be used to increase “overall economic efficiency and effectiveness”. His point was buttressed by the Botswana Congress Party (BCP) MP for Gaborone Central, Mr. Dumelang Saleshando (December 7, 2007) who, while expressing misgivings about privatisation in general, said that the BCP preferred “that Government must consider using outsourcing model as a tool to reduce the burden on Government,
where there is insufficient capacity and target Batswana businesses as the key beneficiaries”.
The advantages of outsourcing include the harnessing of experience and expertise of the private sector to improve service delivery and achieve cost savings due to competitive bidding; shifting Government focus from being a service provider of non-core services to a facilitator for service provision and thus allowing public servants to focus their energies more on those activities which only Government can do and to provide an important catalyst to invigorate the private sector by creating new business opportunities.
In keeping with its mandate of advising Government on the implementation of commercialisation and privatisation, the Public Enterprises Evaluation and Privatisation Agency, (PEEPA) has developed a document titled “Guide to Contracting Out Public Services and Contract Managers’ Guide. The document details a step by step approach to contracting out of activities by public institutions to the private sector in a more systematic manner and with more predictable outcomes.

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The following activities are some of the non-core functions that PEEPA has identified for possible hiving off to the private sector in accordance with the Privatisation Policy’s objective of relieving Government of functions that are non-core to its business namely; gardening and landscaping; specialised services; office cleaning; security services; refuse collection; supplies to destitutes; catering services; accounting and audit as well as building maintenance.

Using Outsourcing to Promote Employment

As President Mogae rightly pointed out in his farewell speech, privatisation which includes outsourcing “will at times, entail short term costs, such as retrenchments, we must not be oblivious to its long term benefits in terms of efficiency, sustainable employment as well as higher quality services”. The Privatisation Policy (page 13, paragraph 49) also recognizes that privatisation would in some instances result in the lay-off of some workers, but it further points out that “apart from these short term effects, however, privatisation can improve the situation of employees in the long run as it contributes to the improvement of the economy’s growth prospects, and thus generates additional job opportunities. In addition to positive long term effects of privatisation, particularly outsourcing, Government is committed to the following interventions intended to cushion any negative effects that may accompany any privatisation activity. They include the following:-
Awarding negotiated redundancy packages, within the laws and policies of Botswana, to retrenched employees.
Giving priority in self reliance schemes to employees rendered surplus to requirement as a way of promoting self employment and
The launching of a programme of training and skill re-orientation to facilitate the absorption of employees in other trades.

Why the Step by Step Approach
As indicated earlier, outsourcing has been used by public institutions for many decades to procure services worth billions of Pula from the private sector, including construction of roads and buildings, provision of engineering services and other professional services, such as accounting and audit.
However, more often than not, procuring institutions have not always realised expected outcomes from outsourcing, examples of incomplete construction projects, legal battles that have lately characterized some contracting out projects remain very vivid in our minds. The reason for these failures could in large part be attributable to the lack of a uniform and well crafted approach to outsourcing.

Outsourcing four

The contracting out manual developed by PEEPA recognizes that for outsourcing to be successful there should be a detailed assessment (feasibility study of the different service delivery options, a determination of the preferred option with clear identification of the desired outcomes or deliverables to inform appropriately what to look for during the tender evaluation and contract management stages. There should be a robust agreement (the contract) between a public service institute and a private sector provider, supported by a service level agreement to serve as a contract monitoring tool.

Our next issue will closely examine how the structured approach to contracting out attempts to ensure that procuring entities get value for money from their contracting out activities by following the entire outsourcing process. So don’t miss our next issue.

*Patlakwe is PEEPA Communications Manager

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