Friday 4 June 2010

Exporting jobs

It's not often that spam e-mails attract my interest, but one I received yesterday did. It was advertising this event, a conference to help the private sector to 'Prepare Now for the Coalition Government’s Significant Push on Outsourcing'. The e-mail also said that the event "will examine various outsourcing models (including off-shoring)".

I know a little about outsourcing. I found myself 'outsourced' in 1996, and then sat on the other side of the fence when I went on to manage parts of transition projects, as my new employers helped other companies to 'outsource' their IT in our direction.

In theory, the process allows organisations to concentrate on their core business – the bit that they're allegedly best at - and let experts in other fields take over the running of the rest. In theory, it allows the companies to which work is outsourced to gain benefits from economies of scale as they combine operations from a number of different organisations into larger teams, and share expertise. And, again in theory, that allows them to 'share' those savings with the outsourcing organisation.

The practice doesn't always live up to the theory of course. The companies taking on the work and staff, unsurprisingly, have more experience in drawing up the contracts and service level agreements than do their customers. And once the service to be provided is tightly defined, it's not unknown for the customer to find that 'contract variations' are expensive animals.

It's not going too far to suggest that, sometimes, it's the contract variations which make all the profit, after the base contract has been sold as a 'loss leader'. Such variations also make it difficult to know whether the original employer has actually saved money or not - they've often paid less for the defined service, but more by the time the 'extras' are added in. Whether there are real 'savings' often depends on how the numbers are presented – but I suppose that is what bean-counters are for.

There are other ways in which the contractors can squeeze profit out of the situation as well. One is by working the employees harder – more hours for no more pay, for example - and another is by worsening their terms and conditions. The second is supposed to be prevented by TUPE regulations, but staff wastage over time combined with new recruitment can reduce the average staff cost without breaking TUPE rules. And TUPE rules themselves are not as insurmountable as some believe.

The other aspect of all this is 'off-shoring'. It means taking a service currently provided by staff in the UK, and transferring it to another country, where labour costs are lower. There's no doubt that there are direct savings to the customer organisation and increased profits for the contracting organisation - but what about the wider economic questions?

If the staff made redundant are snapped up by other employers at similar rates of pay to those they previously enjoyed, then there can be an overall plus to the UK economy. But if they end up claiming JSA, then the 'savings' made by one government department can quite easily turn into increased expenditure for the DWP.

Clearly, there are those in the private sector who believe that government spending cuts will create new opportunities for off-shoring, and they will rush to seize them. But do we really want government to be saving money by exporting public sector jobs, which is effectively what this would mean? It'll be interesting to see how Conservative and Lib Dem apologists explain why this would be in the national interest.


Anonymous said...

Perhaps the Westminster government will outsource the control system for the boron rods in Wylfa B to the same firm that was outsourced for the blowout preventors BP used off the coast of Louisiana ? That would "save" more public money than the LibDems saved outsourcing IT in Swansea !!

John Dixon said...

I'm sure that the company concerned have lawyers actively engaged in demonstrating that they fully abided by the relevant service level agreement. ;)