Cuts must focus on value, not lowest price – everywhere
Having signed off a leader column for FMX that makes reference to the Lib-Con coalition and imminent cuts I’m in the mood to wax lyrical about what George Osborne’s plans might mean and repurcussions further down the line. I accept cuts need to be made, but I lean towards to the Vince Cable (i.e. his views before the election) perspective and I certainly don’t agree with what appear to be punishing restraints on spending across the public sector.
I have a number of worries.
- Firstly, from what I understand (and I might be wrong) the public sector is the only part of the economy that is doing OK. Make dramatic cuts to the budgets underpinning work in schools, health, transport infrastructure and even in IT and there is a risk that what growth there is in the UK will be held back. Right now the private sector is stagnant and can’t step in to fill the gap left by a severely pruned public sector.
- Secondly, no one is talking about the massive levels of private debt. Governments always find a way to deal with public debt. But what about the money owed by private individuals, homes, businesses etc not to mention the massive debts still hanging around in the financial sector?
- Thirdly – in the sector I write about most, FM, there is a lot of talk about how the Government might be able to successfully outsource its way out of recession – i.e. off load non-core public sector work to big privately held groups such as Carillion, Serco, Capita etc and even some smaller organisations too.
There are two big risks here that are associated with my third worry. One is the pension liabilities attached to any employees moving from one organisation to another as service contracts are let out. How are the liabilities managed; who has the capacity to deal with them? The second risk is how the contracts are packaged and awarded. George Osborne’s desire to make economies is encouraging fast decision making – indeed, there is a big risk that contracts will be awarded not on the basis of discussion and collaboration but on lowest price.
So, my fourth concern is that in what is already a consumer society driven by the best bargains and not necessarily best value, the “e-bay” mentality for procuring services will become endemic and the worst fears of the construction, design, facilities management and similar disciplines will come true. George Osborne’s rush to save money will if it is not managed properly generate deals that look good in the short term but in the longer run will prove costly, inefficient and more wasteful than ever. In other words, cuts to the public sector might take the UK built environment back to where we were in 1997 when the Latham and Egan Reports came out.
I could be wrong. I do still believe that some sectors will thrive despite the planned cuts. But the idea of Dutch Auctions and “best value” being thrown out for the sake of short term gain is not a great prospect. Let me know what you think please.
Tags: cuts, Egan, FMX, Latham, lowest price, value
Totally agree – value does not necessarily equate to quality and any move to outsourcing public sector work needs to recognise this.
From experience we know things such as hospital cleaning being outsourced that the push to drive costs down, in some cases, can prove disastrous in terms of preventing Hospital Aquired Infections.
Additonally we hear al ot about cuts to rectify the budget defict but, so far, we have heard very little about stimulating growth in the economy.
The stagnant private sector growth and the huge private debt situation must be tackled simultaneously with public sector cuts to achieve a stronger economy.
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