Better Quality Services: a handbook on creating public/private partnerships through market testing and contracting out

INTRODUCTION

This Handbook gives guidance on achieving the Government's objectives through competition involving the private sector – specifically by market testing and contracting out. ⁽¹⁾ These are types of Public Private Partnership alongside the Private Finance Initiative (PFI). These are not the only approaches to creating Public Private Partnerships. If there is a continuing need for a service or activity currently provided in-house, benchmarking and restructuring may be more appropriate in some circumstances. These can also be types of Public Private Partnerships.

The Government's 12 Guiding Principles in Using Market Testing and Contracting Out say that market testing and contracting out will be used when, case by case, they offer best value for money. This Handbook gives guidance on assessing what would be the best option in the circumstances; on carrying out competitions; on managing people and supporting them through change.

All this involves investment appraisal and procurement, which are outlined in this Handbook, but this is not detailed guidance on appraisal and procurement; nor is it detailed guidance on the PFI or on selling services into wider markets. Such guidance is available from HM Treasury (HM Treasury, Public Enquiry Unit 020 7 270 4558).

In the main the guidance is for senior managers and project managers in Departments. Chapter 6 – Responding to Invitations to Tender – is for bidders, including in-house teams. The guidance will also be useful for Non-Departmental Public Bodies (NDPBs) ("quangos").

References to "Departments" include Agencies and NDPBs.

General questions about the guidance in this Handbook should be put to the Efficiency Unit in the Efficiency and Effectiveness Group of the Cabinet Office, 020 7 270 0168/0073.

This Handbook replaces the Government's Guide to Market Testing.

Sources of further guidance are listed at the end of each chapter.

12 GUIDING PRINCIPLES IN USING MARKET TESTING AND CONTRACTING OUT

issued by the Chancellor of the Duchy of Lancaster, 1997 ⁽²⁾

1. Our aim is to develop modernised, high quality, efficient, responsive, customer-focused central Government services. Our approach to this is pragmatic not dogmatic.

2. We will work in partnership with the private sector, extending the circle of those involved in public service.

3. We will use market testing and contracting out when in individual cases these can be shown to offer better value for money, that is: better quality services at optimal cost. Our approach to this is pragmatic not dogmatic.

4. Existing plans for market tests and contracting out, therefore, should proceed, unless the Minister is satisfied that in the circumstances of an individual case, better value for money can be achieved by other means, which will enable a Department to live within its running costs ceilings. This judgement should be based on a robust and objective comparison of the particular market test or contracting out exercise and the alternative means available.

5. Ministers remain accountable for services contracted out to the private sector. (That is, the Carltona principle is replicated.)

6. The energy, skill and commitment of staff are our best assets in modernising public services. They should be properly trained to carry out market testing, contracting out, benchmarking, restructuring and other means for achieving better value for money that is: better quality services at optimal cost.

7. The concerns of those affected by change should be fully taken into account and properly addressed.

8. Where the relevant circumstances apply when work transfers, staff will be protected by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and the consultation and information requirements of those regulations should be followed scrupulously. To avoid a successful claim for constructive unfair dismissal when staff transfer from Crown employment in circumstances to which TUPE applies, Departments should ensure that the new employers offer broadly comparable occupational pension provision or suitable compensation.

9. Full, effective and continuous communication is a key to successful improvement and change. It should begin as soon as a review which might lead to change is mooted and it should continue afterwards to share what has been achieved. It should happen even when there may be little to report. That way, staff, and their recognised trade union representatives, can be engaged throughout and rumours can be avoided.

10. There should also be full and open information and communication with Departments' customers and stakeholders.

11. Relations with the private sector need to rest on two-way openness and trust. Until the Government's new arrangements on freedom of information are in place, Departments should apply a liberal interpretation to the existing Code of Practice on Access to Government Information and its Guidance on Interpretation. Unsuccessful bidders need to know why they were unsuccessful and how they could succeed next time. For the public, it is important to know how much central Government services cost, no matter who provides them. Commercial confidentiality must not be used as a cloak to deny the public's right to know.

12. Senior management in Departments must give leadership in all these areas and should encourage innovation and continuous improvement.

Footnotes
(1) A shorter version has been published for senior managers. Separate guidance is being produced on benchmarking and restructuring
(2) Hansard, 4 November 1997, Col 94