Monday, 19 January 2015
The latest outsourcing - a case study in political dogma
"Barnet’s Catering Service provides approximately 3.23 million primary schools meals each year and approximately 1.14million secondary meals. The service provides freshly prepared meals cooked mainly on site from fresh ingredients in accordance with Government Food Standards. The service also holds the Soil Association Food for Life Silver Catering Mark which means farm assured meat, free range eggs and some organic foods". It also makes an annual operating profit of £190,470.
Barnet plan to outsource the school meals service as part of a larger package of council educational services including Ed Psych Team, Educational Welfare Services, and the SEN Placements and Performance Team to name just a few. One of the drivers for the council's outsourcing strategy is "the changing educational landscape" in other words the introduction of free school and schools becoming academies.
The business case, unsurprisingly, says that the in-house team should not be allowed to bid because only a private sector organisation has the skills and freedom to make money. Now what I found most alarming is the casual attitude the people who write these business cases take to hard evidence. The business case that justifies outsourcing all these critical services can be read here. As is so often the case in these manufactured documents, they slant the findings to justify their decision. In particular this business case says that the private sector - a "joint" venture will generate significant new revenues. Currently the schools meals service generates 79% of all the revenues from the proposed services at a profit margin of 2.7% an entirely reasonable margin on a school meals service.
I asked some questions about this at the committee meeting last week and the answers I received were alarming to say the least. The business case suggests that a joint venture would generate £1,847,000 in new income - but this is profit, not gross revenue. The business case suggests that the margin on this business will be 20% so that means they will need to generate £9 million of additional turnover - a doubling of the current turnover. By generating this additional £1.8 million of profit the business case shows how a joint venture will mean that cuts to the service will not be necessary.
However, the key issue is whether the margin of 20% is a realistic one. For school catering it clearly isn't. So what happens if the margin is 10% - well that means the joint venture will have to generate £18 million of new revenues and if the margin is 5% - still better than just about any other school meal service, they will need to generate an additional £36 million of gross revenues. Now it may be that they can generate the additional from other services but they will have to work incredibly hard if they are to generate £9 million of non schools meal revenues - the equivalent of carrying out the services for four other boroughs the size of Barnet in the first year. The lack of business sense and the unflinching belief in outsourcing everything is terrifying especially when driven by zealots who accept everything they are told without question.
Your Choice Barnet was, in effect, outsourced to Barnet Homes - an arms length management organisation - with a business plan predicated on growing revenues, something it completely failed to do. This has resulted in staff pay cuts of 9.5% along with with to services. It looks like the educational services are set to repeat exactly the same mistakes.