Industry news

Investors in outsourced public services firm Interserve are slowly starting to panic, as the group issued a warning that George Osborne’s planned increase to the national minimum wage will make the company’s profits at least 10 per cent lower next year than previously forecasted.

Interserve will need to pay at least 10,000 of its 15,000 cleaners a higher wage as a result - £7.20 an hour by April 2016 and £9 an hour within the next five years. Due to the unexpected nature of the summer Budget announcement, company analysts had not previously anticipated this decline in profits.

Interserve CEO Adrian Ringrose warned that there will also be “knock-on effects”, where more senior workers, such as staff supervisors, will expect their own wage increase to protect their pay differentials from junior employees.

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Related: Local councils must find extra £1 billion by 2020 to fund new minimum wage

An iGov survey, commissioned by Serco, has revealed that the majority of managers, department heads and directors working within NHS organisations believe outsourcing and shared services will make an important contribution to the successful delivery of NHS England’s efficiency plan over the next five years.

62 per cent of respondents shared this view, while just 41 per cent thought outsourcing and shared services are currently contributing towards their efficiency targets.

With Capita on the verge of taking the reigns of the NHS’s back office in order to improve efficiency and cut costs, Serco reported that there was “widespread agreement” among respondents that the delivery of immediate savings over the next year will be the easiest step to take. However, meeting NHS England’s demanding target of generating consistent savings of two-to-three per cent each year between now and 2020 was considered to be a much more significant challenge.

Procurement was seen by 54 per cent of those surveyed as the business support area where the largest efficiency improvements can be achieved, with 45 per cent also seeing that as the area where efficiency savings can be brought about most quickly.

The most highly sought outcomes off the back of these organisational changes were ultimately improving the patient journey (74 per cent) and successfully delivering integrated care models (73 per cent).

The “Efficiency Challenges in the NHS” survey polled a broad cross section of managers, department heads and directors from over 200 different NHS organisations.

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Related: NHS and Capita consider administrative cuts to achieve savings and frontline improvements

Capita Managed IT Solutions has been assigned by the Crown Commercial Services (CCS) to the national ICT Services for Education Framework Agreement.

Capita will now have the opportunity to bid to deliver technological solutions to service the needs of the UK’s educational establishments. The agreement was put in place by the CCS to provide educational bodies with easy access to IT suppliers who are best equipped to help them.

Over £300 million in revenue will be available to Capita and other providers involved in the agreement over the next four years.

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Related: Capita announces 11% rise in pre-tax profit with £1.6 billion in major contracts secured

The National Outsourcing Association has released its latest research examining the availability of important skills in the UK in order to ascertain whether the country is ready for global outsourcing leadership.

The research, which surveyed both buy and supply-side NOA members, found that the feeling in the industry about outsourcing’s growth potential over the next five years was strongly positive, with buyers returning an average positivity rating of 66 per cent and service providers responding with a more optimistic 76 per cent.

The general consensus strongly suggested that, in order for the UK to become the number one country for supplying high level services, UK-based suppliers must first and foremost be able to irrefutably prove the business value behind the services they provide.

The research concluded: “if there’s one last message to be taken away from this research, it’s this: regardless of whether they’re being recruited, trained or retained, people are the key to making outsourcing work.”

This opinion was reflected strongly from all sides. A top concern from suppliers was their inability to recruit the right people; buyers were troubled by the quality of staff working for their service providers. Across the board, the training of existing employees at all levels was seen as the best way to address skills issues in the UK.

A lack of enthusiasm for apprenticeships and reshoring contradicted key aspects of the government’s plans for the future of UK business, which appear to fall short of the NOA’s vision for the UK to become outsourcing’s global strategic hub within this decade.

Read the full research report.

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Related: Local councils embrace outsourcing as part of austerity-driven innovation push

Some outsourcing service providers contracted by the UK government to run British immigration detention centres are threatening to pull out of these deals if the government doesn’t try to rebalance incentives, the FT has reported.

Seven of Britain’s 11 immigration centres are run by private firms Serco, G4S, Mitie and Geo Group, while the Home Office is responsible for maintaining the other four.

However, over past years the profit margins involved in running these centres has fallen significantly. In November 2014 Mitie secured an immigration centre contract with the government worth just £180 million, 30 per cent less than similar contracts signed previously with Serco and Geo Group.

With potential profits falling to this extent, some of the companies involved are questioning whether the lower revenues are worth the significant risk of reputational damage that can come from this line of work.

An executive involved with one of these firms told the FT: “These contracts aren’t risk free. Any commercial company will have to look at the reputational risk as well as the financial risk, and if the government isn’t willing to address some of the issues, they will drive companies out of the market”.

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Related: Government spending on shared services sees meteoric rise since 2010

In reaction to a letter written for the Guardian by Mark Serwotka, general secretary of the Public and Commercial Services union, National Gallery director Nicholas Penny has penned his own Guardian article ironing out some of the vagaries and misconceptions concerning the gallery’s intentions to outsource.

Penny began by pointing out some inaccuracies in Serwotka’s original article, explaining that the procurement process for outsourcing some visitor services was not brought forward, and that the timings for each stage of the tender were made public and not deviated from.

Penny went on to assure existing employees that “there will be no redundancies, and terms and conditions of employment will be protected”. He also explained that any employees transferred will continue to be paid the London living wage at minimum and will enjoy additional benefits working for new service provider Securitas.

Plans for the National Gallery to outsourcing jobs such as security, visitor services and ticketing were announced roughly a year ago, in order to improve the level of service offered by the gallery.

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Related: UNISON expresses concerns over Northamptonshire County Council’s extensive outsourcing

Construction services operator Carillion is among a total of 19 suppliers chosen by the government to service its new Facilities Management Services agreement.

The project involves a standardised pool of facilities management resources that government departments and other public sector bodies will subsequently use. Ultimately up to £4.1 billion of services could be outsourced under the new agreement between now and July 2019.

The agreement replaces an old framework for facilities management contracts and should save taxpayers somewhere in the region of £200 million.

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Related: UK service providers threaten to pull out of immigration detention centre contracts

Professional Outsourcing has reported that the Indonesian government’s ban on outsourcing – instigated in 2012 to stop local jobs moving overseas – has failed in its intentions, as many of those low level jobs are now serviced through robotic automation instead.

The decree only allows Indonesian companies to outsource five kinds of roles: cleaning, security, driving, and support services such as mining sites and catering. In the case of alternative roles, it is possible that the uptake of automation has actually driven further unemployment since the law was passed.

In the Jakarta Post, chairman of the Indonesian Outsourcing Association (ABADI) Wisnu Wobowo commented: “Jobs that were handled by people in the past are now filled by machines.”

He cited banks and toll road companies as just a few examples of firms that had started to adopt automation: “To some extent automation is inevitable, but the decree has accelerated the process.”

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Related: Meet the fastest growing Indian companies in the UK

Transport for Greater Manchester (TfGM) has ended its outsourcing contract with Atos. In 2012, a deal was agreed where Atos would design and introduce a new oyster-style transport payment system to be used by Manchester’s citizens.

By October 2014 the new system was put in place for 500,000 concessionary travel pass holders in Greater Manchester, which is now used around 60,000 times a week. However, delays to the wider roll-out of the system have been cited as the main reason for the contract’s termination.

“The parties have decided it is in their best interests to agree to a mutual termination of the contract, on commercial terms, the details of which remain confidential between the parties,” said TfGM and Atos in a joint statement.

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Related: Tata Motors procures Accenture’s services to cut down on bureaucracy

Figures from the latest arvato UK Outsourcing Index have shown that shared services accounted for £1.2 billion in central government outsourcing since the 2010 Treasury Spending Review, in comparison to a measly £58 million in the five years beforehand.

arvato suggests that the 2010 HM Treasury Spending Review “heralded a huge surge in demand for shared services in the public sector”, hence the significant rise in public sector shared services spending.

Such trends are more than likely to continue, with George Osborne’s latest set of austerity measures motivating government, on a local level in particular, to search for more innovative ways to cut costs while maintaining or even improving services.

Debra Maxwell, CEO at arvato UK, commented: “Central government departments moved quickly to work with private sector partners to drive their shared services agenda as part of their strategy to deliver billions of pounds in savings.

“Though shared services was not new within government, private sector outsourcing partnerships can bring in the necessary expertise for real, large scale transformation, including the drive to standardise processes and implement new technology platforms to do the job.

“With departments likely to be asked to deliver even more efficiency savings in the forthcoming Spending Review this autumn, the drive to share services will only grow.”

Read more here.

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Related: Public spending cuts pose serious risk to Britons’ “health and wellbeing”