Clause and Effect: Why Whitehall Keeps Outsourcing Itself

Whitehall doesn’t have a consultancy problem – it has a workforce one, and until that’s fixed, cutting 3rd-party labour spend is just window dressing 

Accompanying the Spending Review last week, the Office for Value for Money (OfVM) released departmental “Efficiency Plans” – a set of relatively high-level but telling outlines of how each Whitehall department plans to deliver more for less. Amongst the usual suspects – the embrace of AI, adoption of digital tools, and workforce planning – that most tempting of the low-hanging efficiency fruit emerged; reducing spend on 3rd party labour. 

Over my career I’ve been a management consultant, contingent labourer and managed service provider. I’ve also been a civil servant who used consultancy, a civil servant who operated in a consultancy-type team and a civil servant whose responsibility it was to help government make better use of consultancy. I’ve found that for many in Westminster, these delivery models are only vaguely understood and too often conflated, with the suppliers involved unfairly reduced to an almost vaudevillian role in the wider Whitehall ecosystem.  

Below I set out, at a very high level, what differentiates each contracting approach, why they can be beneficial, and the common pitfalls associated with each.  

‘3rd party labour’: Explaining the different delivery models  

• Consultancy

At its best, consultancy is there to provide specific expertise and a capability the client doesn’t have themselves. Within Whitehall there’s a huge range of sensible use cases for consultancy; cyber-security, AI adoption, complex technical transformation to name a few. Contracts are usually output focused, e.g. a report, a business case or delivered programme. 

The pitfall:

The problem, though, is that departments are turning to consultancy for the wrong reasons. Too frequently, consultants are brought in to plug capacity gaps and carry out roles the civil service could do itself – think project management office (PMO), business case development and relatively generic programme management, rather than to deploy specialist expertise or advice. The cause is a broken hiring and funding system in which a senior civil servant finds it easier to secure funding for expensive generalist support than to secure hiring approvals from a dysfunctional HR function and intransigent hiring controls set by the Cabinet Office.  

• Contingent labour

By contrast, contingent labour is specifically intended to address capacity gaps. Here the organisation is reaching out to an external party not to for any unique capabilities, but to fill established vacancies. Contingent labour can be individual contractors or entire teams and usually is contracted on a ‘time-and-materials’ basis to carry out pre-defined work for the department. When used effectively, some degree of contingent labour usage signals an organisation intelligently using the market to meet its objectives.  

The pitfall:

However, when used for prolonged periods or to plug a wholesale gap in specialist skillsets (traditionally DDaT in government), this suggests an immature strategic workforce capability within the organisation. Recent publications, such as the ‘A blueprint for modern digital government’, which references the need for departments to wean themselves off widespread contingent labour usage in digital functions, are encouraging and suggest Whitehall is finally waking up to the challenge. It also highlights, however, the dearth of effective, mature strategic workforce planning capabilities in central government

• Managed services

Managed services, which are less visible in Whitehall (but a growth target for many consultancies moving forward), can be crudely described as at the ‘partnership’ end of outsourcing. Here, the supplier takes genuine ownership of a function or capability within an organisation and is expected to be proactive and act as an effective and willing collaborator to the client organisation. Outsourcing, by contrast, is far more transactional and is usually used for specific, routine tasks or processes (e.g. payroll).

The pitfall:

There is very clear evidence that some managed service and outsourcing contracts do indeed provide a raw deal for government – as any civil servant will tell you, there is nothing more soul destroying than a phone call with an outsourced shared service provider. But there is a risk that departments, considering insourcing to be a self-evident good, incorrectly weight the risk of bringing certain functions in house and overestimate the potential savings.  

First, moving functions in-house is hard to undo, and considering many of these functions are those ripe for automation and an AI driven revolution, departments should consider whether they’re better served letting others invest in developing these toolkits which they then secure via managed services or other contracts. From experience, I wonder if departments should take a middle way: ending those relationships with the most transactional outsourcing partners whilst putting much greater emphasis on designing and, most importantly, actively supervising managed service agreements.  

Why Whitehall outsources itself 

If Whitehall wants to spend less on third-party labour, it needs to spend more time fixing the root cause: a dysfunctional hiring system and an underpowered approach to workforce planning. Until then, departments will keep reaching for the same expensive crutches – consultants providing capacity not capability, contractors to plug structural workforce gaps, and managed services to replace their own user-unfriendly systems. The issue isn’t that Whitehall acts like a client. It’s that it’s become a bad one.