In our Insight New Update to the Cabinet Office Outsourcing Playbook: your essential roadmap to the second edition, we flagged the arrival of the second edition of the Cabinet Office's Outsourcing Playbook and updated accompanying guidance notes.

In this latest Insight, the third instalment in our series exploring the new and existing policies and how these have shaped procurements in practice, we look at the 11 key policies set out in the Playbook, which are at the core of the reforms that the government believes are necessary in order to improve future outsourcing and insourcing. We take you through what the policies are, tell you where to find the details and share our thoughts on how the policies have played out in practice over the past year.

Where are the key policies found?

A summary of the key policies can be found at the front of the Outsourcing Playbook (pages 8 and 9), with the detail embedded within its chapters and the associated Guidance Notes. The bulk of the policies (7 of the 11) are found in the chapters related to the preparation and planning stage, aligning with the government's clear intent to improve the design of outsourcing and insourcing projects from their inception.

It should be noted that not all of the policies apply to all projects. Three of the policies only apply to 'complex' projects, being those involving: (i) first generation outsourcing; (ii) significant service delivery transformation; (iii) obtaining services from markets with limited competition or where government is the only customer; and/or (iv) novel or contentious services.

What are the key policies?

The eight policies which apply to ALL outsourcing projects are:

  1. Publication of commercial pipelines - All central departments should publish their pipelines of government contracts and commercial activity, looking forward at least 18 months but ideally three to five years. By enabling suppliers to understand future demand, government hopes to drive wider participation and supply chain diversity.
  2. Market health and capability assessments - Departments should undertake market assessments in the project preparation and planning stage in order to determine the health of the relevant market and consider how its commercial strategy and contract design could be set to address potential market weaknesses. There is no prescribed format - a flexible, risk based approach is encouraged - although the accompanying 'Market Management Guidance Note' sets out key questions/criteria to be addressed and suggests actions to take in order to address any identified weaknesses. Market assessments should be kept under review throughout the life of the contract.
  3. Delivery Model Assessments (previously make versus buy) - Departments must decide whether to outsource a service or deliver it in-house prior to the Strategic Outline Case stage and support it with a thorough evidenced based analysis. Edition 2 of the Playbook includes a structured framework to do this (pages 22 and 23) as well as an updated Delivery Model Assessment Guidance Note.
  4. Design Key Performance Indicators (KPIs) that are relevant and proportionate to the contract and make three publicly available - Departments should avoid having too many KPIs (i.e. more than 10-15 per service), with the chosen KPIs focusing on delivery to the end user and aligning with the intended benefits to be delivered (i.e. cost certainty, performance improvement, maintaining user satisfaction). The three published KPIs should be those which best demonstrate whether the contract is achieving its set objectives.
  5. Allocate risk to the party best able to manage it - Government acknowledges that this is central to delivering value for money, enabling optimum pricing and a fair market return. Risk allocation is to be subject to 'extensive scrutiny' prior to going to market, with risk registers being shared with bidders. Departments are advised to share existing data and not seek to transfer risk for inaccurate data to incoming suppliers, to allow for indexation where relevant and not to ask suppliers to take unlimited liabilities.
  6. Adopt a pricing and payment mechanism that complements the approach to risk transfer - Departments are to consider whether they want to retain control over service delivery or allow the supplier to determine the solution, and allow such decision to drive the payment mechanism (i.e. whether it is input with no risk premium or output with a built in risk premium). Departments are to avoid fixed price payment mechanism where the scope of work is not fixed.
  7. Assess and monitor the economic and financial standing of bidders - Departments are to assess bidders' financial capacity to perform the contract in a proportionate, fair and not overly risk averse manner. The Contract Tiering tool is to be used to determine the level of assessment required and where financial thresholds are set. Assessment is to be undertaken during the procurement but on-going financial monitoring will occur throughout the life of the contract.
  8. Follow Resolution Planning guidance to help ensure continuity of critical public services - Suppliers of critical service contracts and public sector dependant supplier are required to provide corporate resolution planning information at the outset and keep such information up to date throughout the contract life. Such data enables Departments to better understand the potential impact of an insolvency in the supply chain and develop mitigation plans.

The 3 policies which apply to complex projects are:

  1. Go through a Project Validation Review (PVR) - All complex outsourcing projects must go through a PVR. PVRs involve an independent peer review occurring prior to any public commitment being made in order to benefit from cross government expertise. Details are set out in the Major Project Approval and Assurance Guidance. Complex outsourcing projects will gain embedded support from the Cabinet Office Complex Transactions Team.
  2. Produce a 'Should Cost Model' - Complex projects must be supported by a 'Should Cost Model' as part of the Delivery Model Assessment. This estimates the total cost of delivering the service based on a clear specification, KPIs and operating model.
  3. Pilot first generation outsourcing - Pilots should be used to test the viability of first generation outsourcing (and may also be used to test new technologies, delivery innovations / service transformation or where there is weak market competition). Mixed models of service provision should be considered.

What has changed with the release of the second edition?

The 11 key policies remain the same as those set out in the first edition of the Outsourcing Playbook. There has been a bit of rebadging (i.e. 'Make versus Buy' assessments are now Delivery Model Assessments), but the key changes are the addition of more detailed guidance on how to implement some of the policies (particularly on Should Cost Modelling, piloting and the new Delivery Model Assessment framework).

How have the key policies played out over the last year?

The reaction from suppliers to the 11 Key Policies has been generally positive. We are increasingly seeing our clients engage in detailed, constructive and informed discussion regarding risk allocation - with both sides having the confidence to probe and challenge positions across the negotiation table and internally based on the Playbook's clear recommendations. We are seeing a shift from the risk adverse approach of the past - in particular, in relation to the setting of liability caps and the approach to due diligence data.

Equally, the increased focus on doing the ground work in the early stages of a procurement is also helping to tackle many of the issues that we typically see arise. Positions set out in proposed contracts have been better supported by fuller service data and analysis - shortcutting the more difficult discussions.

Of all the policies, the least popular from the supplier community has been the idea of publishing performance against certain KPIs. We are seeing suppliers increasingly focus on the thresholds set against those KPIs which are to be published - and a degree of 'low balling' to mitigate risk.

In terms of challenges, ensuring that the relevant Departments have sufficient resource and capability in order to undertake some of the measures proposed was always going to be key. The policies embody the gold standard - but also require considerable investment. Support has been out there, with the Cabinet Office using Knowledge Drop sessions and targeted. We understand compliance is being assured through Departments' governance processes and central Cabinet Office controls (for projects over £10 million total value). Suppliers are also encouraged to report any concerns about Department's compliance with the policies to the Public Procurement Review Service. This is a tool that we have seen used, or threatened, on occasion.