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Select Committee on Public Administration Appendices to the Minutes of Evidence

Memorandum by SchlumbergerSema Consulting (PSR 22)

  Here is our response to those questions which we feel best qualified to contribute valid opinions.

Q5.   How do we know if public service reform is effective?

  A5.  We, as a private sector consultancy organisation, would naturally advise you to measure it.

    —  Firstly, be absolutely clear about what are you trying to fix/improve/reform—at both high level and low level

    —  Then, set clear Key Performance Indicators and Critical Success Factors—whether qualitative or quantitative

    —  Also, set clear and measurable performance objectives/quality standards, eg in social, political and economic terms—for key areas such as finance, health, education, communication, crime, employment, etc.

    —  Measure and establish baselines in all the parameters which you wish to improve, and clearly identify units of measurement in each case

    —  Set up (preferably) IT-based measurement mechanisms to capture periodic metrics on each of the attributes and parameters which are subject to change

    —  Compare performance measurements periodically to their original baselines and also to proposed target levels

    —  Periodically review and evaluate results, trends and forecasts using the appropriate technology

    —  Manipulate key drivers to produce "what if" scenarios using IT systems.


    —  Measure customer satisfaction levels and changes

    —  Possibly, implement the above process on trial basis first, in a controlled environment or pilot study

    —  Visit and study overseas models to gauge success of similar or alternative initiatives elsewhere

    —  Review how many more projects, undertakings, contracts, initiatives, programmes, developments, are delivered to time, to budget, to performance target.

  Evidence as to the success of this approach is provided by the National Audit Office report into Sema Group's (now SchlumbergerSema) role as outsource supplier of Medical Assessment of Incapacity and Disability Benefits (Report by the Comptroller and Auditor General, HC 280 Session 2000-01, 9 March 2001).

  It stated that prior to the start of the Sema Group (now SchlumbergerSema) contract:

  "Business targets for costs and turnaround times and quality standards were not being achieved. After assessing several options the Department pursued outsourcing as the best way to achieve a range of objectives: to improve the quality of reports, speed their throughput, maintain services to customers, lever in investment and reduce costs." An example of setting clear objectives.

  After the Sema Group (now SchlumbergerSema) contract was awarded it stated:

  "Sema Group offered the cheapest bid, below the cost of the existing in-house service. . . The Department. . . . estimate that outsourcing will save between 10 and 14 per cent compared to the in-house operation (the public sector comparator)." An example of setting measured performance targets.

Q.6.   Is the concept of a public service an anachronism?

  A6.  If we define "anachronism" as being a thing of the past rather than the present or future, then clearly there has been a trend away from the provision of public services over time, whether free at the point of delivery or otherwise. This has come about for a number of reasons, for example the cost of fulfilling higher citizen expectations fuelled by wider, more expensive possibilities, linked with an increasing community resistance to paying for it.

  However, the answer to the question for any one country depends on a blend of several parameters:

    —  The historical tradition of the country in question

    —  The current and expected future economic status of the country

    —  Its demographics (eg working population versus pensionable/unemployed/student age etc)

    —  The political colour of the Government

    —  The policy priorities of that Government

    —  Its taxation-versus-provision of central services ideology

    —  The current and expected world economic climate

  Applying these variables to this country we can say that Britain has:

    —  A strong historical tradition of in-depth provision of central social services (eg in respect of healthcare, education & training, social service benefits, transport infrastructure, environment development)

    —  A relatively wealthy economic standing (in European and world terms)

    —  A Government with a public service philosophy and priorities.

  Therefore, it is reasonably evident that an extensive, centrally provided, public sector service will continue to be provided.

  However, this country also has to contend with certain other factors, namely:

    —  A recent tradition of public sector services being privatised, removing the infrastructure for future public delivery

    —  A world economic situation in which this country is likely to face downturn of GDP per capita

    —  An increasing loss of relative wealth vis-a"-vis other countries, i.e. an expected downturn in the economic climate of this country

    —  Changing demographics (ageing, less employed population)

    —  Current governmental tax policy which militates against extensive increases in general provision of public service, free at the point of delivery.

  Thus, clearly, this is not a black and white issue. Although a core of public service provision must sensibly continue, and in some areas be enhanced, new and in some cases traditional areas need to be reviewed (viz. tertiary education funding, transport, healthcare), with a view to re-structuring what is provided from the centre.

Q.7  Is there a public service ethos and how can it be defined?

  A.7.  After considerable thought, we consider that the traditional Civil Service ethos does still exist but that its practical definition depends on which echelon of the service you examine. We consider that there appears to be a schism between the ethos of the upper echelon and the lower echelon. The way in which senior members of the service relate to ministers of state and each other is largely alien to the manner in which the workers in the field relate to the world. It is possible that this is due to an "implementation gap" in the ethos. However, it is also possible that the ethos is substantively different at the different levels.

  The traditional (largely upper echelon) public service ethos can be summarised as follows:

    —  Public servants are motivated (at least in part) by a desire to perform their duties on behalf of the public good, ie they have a sense of vocation and service

    —  They believe in an even-handed political impartiality, ie a desire to serve the will of which ever political master is incumbent without prejudice

    —  They have a high standard of legal compliance and probity, ie a reputation for dispassionate service delivery, integrity and incorruptibility

    —  They believe in advising ministers without fear or favour of the consequences

    —  They believe in selection and promotion on merit

    —  They believe in accountability for their efficiency and effectiveness to various public bodies

    —  There is no bottom line profit motive in their work, however this is theoretically replaced by a need to adhere to strict financial budgets, or to demonstrate costs savings, or in some cases to demonstrate VFM.

    —  As there is no profit element, there is an ethos for Civil Servants to be willing to earn somewhat less than the open market rate for their qualifications and not to have the same range of job opportunities in their chosen field, compared with the private sector.

    —  In return for this, there is an ethos of expecting to have better job security and longevity of tenure than those enjoyed by workers in the other two sectors.

    —  There is a strong ethos involving skills training, career development , status improvement is met through such initiatives as Investment in People, regular promotion boards and a much wider opportunity to apply for sideways career moves.

    —  Critics of the ethos of the higher echelon of the Civil Service have also evidenced it to have problems, however. Sir Richard Wilson, in the annual progress report on Civil Service Reform, Dec 2000, remarked on:

    "The perceived slowness of its reaction, poor performance in providing policy advice, an inattention to policy delivery, inadequate understanding of risk management issues and bad project management."

  At the lower echelons of public service, however, the more negative elements of the public service ethos are apparent:

    —  Perhaps the biggest negative element of the ethos is that, due to the low pay, there is a tendency not to work over hard, i.e. to deliver a second rate product as the pay is second rate, as there is no difference in price the consumer pays for a first class product or a second class one, so why produce a first class one?

    —  Lower echelon public workers tend not to have such a rosy view of ministers - sometimes accusing them of, "being interfering, here-today-gone-tomorrow, having no idea of the real issues or upsetting the status quo"

    —  At its very worst, this manifests itself in the citizen's perception of the ethos of lower echelon public sector worker as being one of "laziness, incompetence, being a `jobsworth', slow, poorly qualified, disorganised and having a serial (chain) absence of accountability", however unfair this may be.

Q.8  How is the public service ethos different from the private (or voluntary) sector ethos?

  A.8  If for the purposes of this question we assume that the public service ethos is as described above (see A.7), then in contrast, our view of the voluntary sector ethos would be that:

    —  There is an obvious lack of profit motive

    —  There is not necessarily a complementary desire for low remuneration, rather a desire for an equitable one

    —  There is possibly a greater lack of willingness to be accountable to public bodies for performance

    —  There is a tendency not to adhere easily to budgets, VFM initiatives or savings targets.

    —  It has a need to be competitive in order to obtain repeat offers, and it often will be, due to lack of profit mark-up

    —  It is not worried about longevity or personal/organisational development

    —  It is motivated by a wish to work for the public good.

  Our view of the private sector ethos can be characterised as follows:

    —  A desire to earn financial profit and maintain or increase market share. If a publicly quoted company to satisfy shareholders/The City

    —  To do this not to the detriment of clients or host organisations but in order that both may benefit (win-win situation), so as to maintain or to grow the relationship

    —  To deliver a high quality of service, within budget, to agreed timetables so as to achieve repeat sales or earn an agreed performance related payment

    —  Although not necessarily motivated by idealism or a public-spirited ethos, to promote its positive image in the public domain by good work, innovation, reputation for quality that helps the public well-being, in order to benefit its subsequent market position.

    —  A desire to make the customer or client look good, in order to obtain repeat orders or to gain references for the acquisition of new customers

    —  A wish to maintain a close customer / client relationship or partnership relationship, so that the private sector supplier can merge its cultural, aspirational and visionary ideals with that of the client/customer over time, to improve or develop the goods or services provided and thereby its relationship

    —  A belief that the customer is king, the customer is always right - two slogans which may clearly distinguish the private and the public ethos.

  Building on our thesis described above, we consider that ethos depends on which echelon of each sector is compared. Taking the public and the private sectors, then contrasting upper levels of the public sector with the upper levels of the private sector would, in our view, not produce as much difference in ethos as contrasting the upper levels of the public sector with the lower level of the private sector. Indeed, we consider that there is more of a contrast between the ethos of the upper level of the public sector and the lower level of the public sector and similarly with the ethos of upper and lower levels of the private sector. (See Figure 1).

  Private sector companies polarise quite strongly into those prepared to do public sector work and those not, either at an overall company level or by establishing different units within the company. Attractiveness of public sector work is primarily measured in terms of profit, with a balance struck between lower margins and longevity.

Q.9  Is the public service ethos necessarily a good thing? Can it be an obstacle to the effective delivery of services to the public?


  As indicated by our answer A.6, clearly the public service ethos is not necessarily a good thing per se. It depends on the balance of the elements listed above, as some are more positive in promoting good service and some are more prohibitory. Clearly, if it were a good thing per se then, as the private sector mostly lacks the public service ethos, the private sector would not have been so effective as it obviously has been in producing wealth in capitalist society.

  Ways in which the public service ethos can be an obstacle to the effective delivery of services to the public include:

    —  It can encourage the civil servant to view himself as the agent of officialdom, leading to a sense that there is little need for him to be particularly quick or thorough, as the customer is a captive audience and he cannot go anywhere else to fulfil his requirements.

    —  The non-competitive element of the ethos lends itself to the belief that the work is never-ending, ie just keeps coming no matter what, so there is little incentive to finish what you've got, as there will be only be more of the same to do tomorrow if you do.

    —  It can lead to the absence of commerciality, where the service element can take over too much from the cost-effectiveness element. This can lead to over-elaboration, slowing down and overspending. There is a conflict between efficiency of the commercial kind and the public sector ethos. Efficiency will always reach (and test) a boundary, eg it is more efficient to build houses without windows but they will not sell. Likewise, efficient services have to be used by the customer, or the service provider will not get paid.

    —  The ethos could be something the Service hides behind to avoid change; inhibiting modern, efficient, reformed public services, ie could be detrimentally responsible for upholding of traditional approaches, contributing to the phenomenon of "channel rivalry." For example, the introduction of Risk Management could imply breaking ethos of the equitable treatment of people, because it involves in treating people differently according to their risk evaluation.

    —  The public service ethos has a tendency to create inbred generalists. This is supported in evidence given to the Select Committee on Public Administration, Seventh Report stating:

    "The Civil Service's policy-making expertise has also been called into question by the fact that it has traditionally been composed in the main of generalists—that is, people equipped with a good undergraduate education but not further trained in any specific professional skill. . ." (PASC, 2000).

    It is also supported by the statement that it needs a greater degree of external recruitment to prevent it from becoming "a stagnant puddle," (PASC, 2000).

  To reverse the question, evidence to support the view that the delivery of public services can be enhanced by the private sector ethos, is provided by the National Audit Office report into Sema Group's role as outsource supplier of Medical Assessment of Incapacity and Disability Benefits (Report by the Comptroller and Auditor General, HC 280 Session 2000-2001, 9 March 2001). It stated:

    " Before outsourcing, the Benefits Agency medical service was an underachieving organisation operating within tight resource constraints. Outsourcing has reduced the cost of the operation to the Department and has seen valuable improvements in the speed with which work is processed."

Q.11  Is it possible for profit-orientated organisations to maintain the public service ethos?

  A.11  Yes. If we assume that the key elements of the public service ethos are as listed in A.7 dash points 1-6, then the private sector can quite simply be made to maintain them during service delivery, by building the adherence to these values into Service Level Agreements, so that remuneration is linked to them—so long as commitment to shareholders is added.

  In any case, it is somewhat superfluous to do so, as it is not essential for the private sector organisation to maintain the ethos. It can be made to contribute to agreed targets and standards which incorporate adherence to these values via contractual arrangements without necessarily having to subscribe to them themselves. In any case, the public sector ethos does not really need to be "maintained" by the private sector in order to survive.

  Evidence for this view is obtained by reference to the National Audit Office report into Sema Group's (now SchlumbergerSema) role as outsource supplier of Medical Assessment of Incapacity and Disability Benefits (Report by the Comptroller and Auditor General, HC 280 Session 2000-2001, 9 March 2001). It stated:

    "The contract provides strong incentives to deliver medical assessments to time. . .Since outsourcing the speed and efficiency of medical assessment have improved. . . ".


    "They also deliberately agreed a single price for all Incapacity Benefit reports, whether or not an examination had taken place, to provide better incentive to Sema Group to reduce unnecessary examinations."

  Two examples of how it is possible for a private sector company to uphold public sector objectives.

Q.12  What measures, if any, need to be put in place to ensure that the search for profit does not undermine the public service ethos?

  A.12  Probably, contractual constraints would be sufficient backed up by the normal audit process. This is evidenced by three recent statements (Select Committee on Public Service Report, Part 5), the first by The Director General of the Prison Service, Mr Richard Tilt, who said:

    "We require them (privately run prisons) to be run to the same policies, the same standards, the same rules, and we specify quite clearly what sort of regime we want and what they (the private sector) must deliver on a daily basis."

  The second supporting piece of evidence is by Lord Mackay of Ardbrecknish who, asked whether if a public service function was contracted out to the private sector, confidentiality and accountability could be maintained and preserved in the way they traditionally had been in the public service, said:

    "I think you can because you simply put that into the contract with whoever is doing the work for you. . . ".

  The third supporting statement was made by Dame Ann Bowtell who said about the way the DSS handled contracts with the private sector:

    "What is absolutely critically important in these is the specification you give to the private sector, and what incentives you build in for them to behave in the way you want them to behave. . ..It is the contract and the contract specification and the monitoring of that contract which is all important. If you get that right, you can get them to do whatever you want."

  Clearly a good contract is as good if not better than a good ethos, as it is legally enforceable.

  Regarding the search for profit, Mr Tilt further evidenced, and we would concur, that:

    "The value of integrity includes exercising effective stewardship of public money and assets. For the private sector there is in addition the obligation to produce a return for the shareholder. So far there is no evidence that these two objectives are inconsistent."

  In our view, there is no need for the private sector organisations while on assignment to literally adopt the public service ethos in order to maintain it, their profit-making attitude would, therefore, not undermine it. If, on the other hand, the question hints at the public service ethos of the public service workers being contaminated by being in close proximity to the private sector, by definition this cannot really happen, certainly not by the limited actions of private sector participants, as the massive public service body must be largely immune from such relatively small pinpricks.

  Possibly the best insurance against the potential degradation of the public service ethos when engaging the private sector is to "sandwich" it quite firmly in between layers of public sector control. Please see our suggested model for how this could be done (see figures 2-4). Figure 2 shows the basic consulting model.

  The aim would be to extend the use of Public-Private Partnerships, Outsourcing deals, and Private Finance Initiatives. Also, greater imagination needs to be used in cementing the two sectors more firmly together in terms of their direction, management, planning, control and monitoring of assignments. This could be done by introducing more risk-reward schemes, cost improvement benefit sharing schemes and SLA payment-by-results schemes. By harnessing the drive for private sector profit linked to delivery, costs to the community can be driven down and standards raised for mutual benefit.

  Further "Sandwich" models for Public-Private Partnerships and Outsourcing arrangements are shown in figures 3 and 4 below.

  Alternatively, as with Civil Servants, performance could be measured in terms of excellence of public service rather than financial measures - which are necessary but can be considered separately. An example is the Passport Agency offering a fast stream passport issuing service. This service would command a premium charge, which could be seen as distorting the ethos by special dealing. However, the Passport Agency was regarded as providing a "better" service to the public. A further example is the successful running of private sector prisons.

  Further evidence for this is provided by the National Audit Office report into Sema Group's (now SchlumbergerSema) role as outsource supplier of Medical Assessment of Incapacity and Disability Benefits (Report by the Comptroller and Auditor General, HC 280 Session 2000-2001, 9 March 2001). It stated:

    "We found no evidence that the company had sought to maximise their profits through a systematic policy of under-examination. . . "

  This clearly indicates that the normal audit process can be an adequate safeguard against profiteering.

Q.13  Can lessons be learned from the experience of private sector involvement in public services in other countries?

  A.13  Most definitely. There is a strong case for examining initiatives taken in countries and their subsequent effect. Changes and results can then be modelled to reflect Britain's values for the same parameters, in order to gauge the effect the same changes might have on our environment.

  A useful exercise, if not already in done, would be to draw up a league table of the leading developed countries, for such parameters as levels of service provided in each of the key areas of public life, income per capita, GDP, other measures of wealth, the levels of national debt and taxation percentages from direct and indirect sources. Then by reading off where Britain lies in the table, the quantity of money that should be spent on public services can be estimated by comparison with other adjacent countries.

  International comparison will be made easier with the advent of e-business.

Q.14  Do private sector people working in and around Government, including secondees, task force members and others, undermine the public service ethos? Are special measures needed to regulate their activities and prevent possible conflicts of interest?

  A. 14  No, private sector people working in and around Government, especially secondees, task force members and others, do not undermine the public service ethos. Therefore, no special measures are needed to regulate their activities or prevent possible conflicts of interest.

  In our view, the biggest threat to the erosion of the public service ethos comes from within, ie from its own membership or leadership's altered standards and attitudes, over time. In our experience, those coming from private and voluntary sectors tend to adopt the values of the public sector while they are working within it, as it is always advantageous for them to conform to the culture of any organisation into which they are inserted.

  Because of their level of professionalism, private sector workers can be taught how to work within the ethos while on their assignment. At worst, it is even conceivable that interaction between the two sectors would enable improvements to be suggested which might bring the ethos up to date without undermining basic principles.

  The fact should not be overlooked that many private sector firms have a large number of ex-civil service workers, generally, and also as a result of outsourcing / TUPE deals.

Q.15  Many companies are becoming increasingly aware of social and ethical issues. Does this make them more suitable for work in partnership with the public sector, or does it make no difference?

  A.15  It probably makes no practical difference. It does not harm the case for such companies to be involved in public sector delivery. However, the companies in question would soon cease trading if they let their awareness of social and ethical issues make them less entrepreneurial than those who were not. If there is any benefit, it probably comes from the initial feeling of extra trust and confidence which the public sector may have towards such companies at the outset of their relationship.

Q.16  Do the views, motivations and attitudes of public sector workers differ from those in the private sector? Does any difference in motivation have an effect on the delivery of public services?

  A.16  Yes, the views, motivations and attitudes of the public sector workers do differ from the private sector.

  As already stated though, we do not think they necessarily harm the delivery of public services, as they can be adequately controlled by various means. In fact we consider that it might be beneficial if the public service would start to think and act more like the private sector, instead of the other way round. For example:

    —  To the private sector worker everything is a resource. It is innately understood that all resources are scarce. All resources have a value and a cost and must be paid for. In turn, each product and service which is produced also has a cost, price and worth.

    —  The private sector worker also understands that services and products have to be produced to budget. If not, there is a serious consequence which could be terminal. Services and products have to conform to VFM, usually with work having to be carried out as cheaply as possible to meet agreed budgets and maximise profits.

    —  Also, the private sector has a "project mentality". It understands that jobs must be contracted. Contracts must be respected. Also, work must conform to standards. Standards must be high and measurable. If standards are not met, payment is not forthcoming. People can lose their jobs (and companies contracts) if they do not meet standards.

    —  In the private sector, if the current workforce does not have the appropriate qualifications, someone is recruited from outside who does have the skills. In the public sector, there is too great a tendency to send away on a course the selected person who does not have the requisite skill. This is often counter-productive, as the job waits while the person is away on a course. When the person returns the person is often ineffective, because the person returns as an inexperienced novice in the new technique.

    —  Without this attitude and motivation, there is reason to believe that public sector service is delivered with less concern for speed, accuracy and quality, less likely to be delivered by the most appropriately expert personnel, to budget, to the best budget, i.e. with the best value for money.

  There is evidence to show that the benefits and advantages of private sector thinking have already been recognised by the Government and implemented. This is happening in respect of VFM and compulsory tendering for best price. Similarly, Resource Management has been in practice for years in the public sector , with financial budgeting controlling departmental expenditure.

  In summary, we consider there are certain advantages of the private sector worker attitude over the public sector worker attitude, namely:
Public SectorPrivate Sector
Insufficient incentive to work hardMotivated to harder working
Motivated by impartialityMotivated by ability to negotiate pay rises
Motivated by public goodMotivated by the sack
Averagely paidBetter paid
Arbitrary qualityQuality defined by standards
StagnantHoned by mobility
Slow change by evolutionFast track change by revolution

Q.17 There is conflicting evidence as to whether the public is in favour of private sector involvement in public services (MORI polling, June 2001). What in your view is the truth about public attitude?

  A.17  It depends what is understood by the word "public". Clearly, "public" could refer to "the men on the Clapham omnibus", who generally support hanging and flogging. Alternatively it could mean a statistically representative cross section of all those not personally involved in any of the three key sectors involved in this consultative document, which is completely different. If a well researched professional poll found conflicting evidence then that is exactly what there must be.

  However, If you are asking for our "personal point of view" i.e. what we think, as opposed to what we think the public think, which is basically all we are able to provide authoritatively, then we would say the following.

  It would be probably be ideal if all public services were able to be provided entirely by public servants, to the full needs of the populace, efficiently, affordably, economically, loyally, dedicatedly, with leading edge ability, with quality, in a timely fashion, honestly, equitably, in the required quantity, in the appropriate locations and at the required times. However, failing this, (which it does) it is totally appropriate for the Government to seek the best or better alternatives to support this provision from any sector suitably placed to deliver them, on the understanding that they are appropriately commercially viably obtained, managed, monitored and audited.

Q.18  If there are to be rules regulating private sector involvement in public services, should they apply also to, for example, the voluntary sector? Should there be less stringent regulation where profit is not involved?

  A.18  Once an external voluntary organisation has been procured to provide work, i.e. its proposal and charges have been deemed to be acceptable, then in our view, it should then be subject to equally stringent regulation as a private sector organisation. The reason for this is that it is equally bound by its contractual responsibilities as a private sector company to the audit requirements of the public purse, to ensure that it adheres to its service level agreement, achieves its target deliverables, savings or performance objectives, within agreed timescales and to agreed quality levels. If it does not, it will be equally guilty of wasting public money and the public service employing it of maladministration.

Q.25  Does the growth in private involvement in public services threaten to reduce public accountability?

  A.25  No. Quite simply either the private sector organisation involved in supplying services is responsible to the public sector organisation via an SLA, and the public sector organisation continues to have public responsibility; or, if a public-private partnership is formed, the partnership is drawn up so that it has a statutory responsibility to submit to public audit office authority.

Q.26  Do the demands of commercial confidentiality threaten the accountability of public services when the private sector become involved?

  A.26  They could, particularly when requested to disclose their profit gearing or internal cost structures in a procurement situation. However, this can be overcome so long as a flexible approach is adopted by the procuring authority, to enable comparisons to be drawn on an equitable basis between private sector companies by other means. However, it should not threaten the ongoing association between the organisations once the relationship has begun.

November 2001

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