The CSR Phoenix will rise from the flames: implications for government and suppliers alike

The government's 2015 Spending Review will bring changes to many departments and their IT suppliers

Background

Wednesday 25 November will see the chancellor announcing the outcome of the 2015 spending review (CSR) but we already know that most departments will be required to save 25 per cent to 40 per cent of spend by the end of the current parliament.

Four departments (transport, local government, environment and Treasury) have already agreed to cut their spending by an average of 30 per cent over the next four years. This translates into day-to-day spending being cut by eight per cent in each of the next four years.

The drive on efficiency savings – government and suppliers need to think outside the box

Doubtless a key outcome of CSR will be the shelving of lower priority projects. But in addition – particularly as much of the low hanging fruit has already been picked – departments will need to be innovative in their commercial and service delivery models.

Fortunately, alternative commercial and technology-based options may rise to the saving challenge, at the same time presenting opportunities for suppliers of all sizes.

Which routes could departments take?

More outsourcing and offshoring – Outsourcing certainly presents solutions, where suppliers will be contracted to deliver savings off the bottom line. However, as government is pushed harder, we predict the boundary of what is traditionally retained by government as 'core citizen services' will need to shift, as more functions are outsourced. Public sector IT and BPO services are already being provided from offshore locations (such as the Home Office's Disclosure and Barring Service serviced in part from India). Also more offshoring will yield the cost savings of labour arbitrage, but is a solution only so long as the data security challenge can be addressed.

Greater and better use of shared services – use of shared services across government has certainly gained traction and more is expected. Government Digital Service announced last week that it was applying to Treasury for CSR funding for its 'government-as-a-platform' service along with common technology services initiatives. Shared platforms for other common services – such as payments and medical appointments – are also being considered.

Alternative commercial and contract models – government is likely to continue its trend in partnering and joint venture models (such as the debt management shared services framework recently established by the Cabinet Office) under which government and the private sector become shareholders in a special purpose vehicle. These will provide both shared services efficiencies and revenues through dividends and future sale of government's shares.

More multi-sourcing – direct contracting 'at source', rather than through prime contractors will allow government to procure specialist providers (without margin or cost plus) and access and directly manage innovative technology approaches that specialist SMEs offer.

Use of technology, cloud and other 'as-a-service' offerings – Through initiatives such as G-Cloud and its Cloud First policy (and more recently the Digital Marketplace), the government is already committed to encouraging public sector organisations to make greater use of cloud and other technologies (including from SMEs). Further adoption of buying IT as a service (SaaS, PaaS and IaaS) through G-Cloud or other frameworks may also bring significant savings (as assets are moved off the government's books and they adopt pay-as-you go models).

Public perception – the greatest challenge presented by CSR?

With government outsourcing deals continuing to hit the headlines for all the wrong reasons, more outsourcing, offshoring and the use of technologies such as cloud will inevitably raise eyebrows with the public. Although in recent findings greater than 50 per cent of citizens surveyed considered the spending cuts were necessary, only 22 per cent consider more public services should be outsourced to the public sector. Concerns clearly arise in relation to loss of accountability, poor value for money and data security.

Success will only come through government and suppliers working together to address these concerns. Ensuring that government retains appropriate controls and scrutiny over the outsourced services will be key, and government will need to continue to invest in the upskilling of procurement and contract management teams.

While we wait for the Phoenix to Rise….

We eagerly await the outcome of the CSR, but one thing is for sure - both government and suppliers need to be in the starting blocks now, ready to provide solutions to the upcoming CSR challenge.