HowhasoutsourcingaffectedpublicservicedeliveryinHongKong?

Illustratewithrelevantcases.

ByBrendaChan,DavidWong,Hooly Leung,OlgaChanandBorisSiu

Outsourcing throughtheeyesof

Tosee

CostQualityofserviceSocialImpact

Government Contractor CivilSociety

OutsourcinginHongKong OutsourcinginHKGovernment:wheneverpossible Outsourcingnoncoreservicesandroutineexecutionprocesses

Corefunctionsanddefinitiondecisionsremaininhouse:policyformulation,publicfundsbudgeting,regulatoryandcontrolmeasures,licencing andlawenforcement

Examples:publicworks,environmentalhygiene,leisureandculture,transportation,security,propertymanagement,informationandtechnologies

GovernmentOfficialsGovernmentOfficialsViewonCostViewonCost

CostEffectiveness

Lowerservicecost

Downsizingofcivilservants

Transferalofoperationalrisks

Flexibilitytomeetfluctuatingneeds

Lowerservicecost

Publicservicedeliveredbygovernment:inefficientandineffective

Civilservants:employedintenure;lackincentivetoimproveservice

Lowerservicecost(2)

Marketcompetition:sameservicelowercost Businesscycletriggeredimprovingqualityofservice:bids,tendering,contractualperformance,assessmentofbidderspastperformanceinfuturebidsandtendering(e.g.FEHDs defaultnotice)

Increasingdemandsofpublicservicemetbylimitedresources

Lowerservicecost(3) EfficiencyUnit2010SurveyonGovernmentOutsourcing:80%contractsgotolowestpricebids

Lowerservicecost(4) EfficiencyUnit2010SurveyonGovernmentOutsourcing:overallcostsaving26%35%

Downsizingofcivilservants

Containortrimdowntheno.ofcivilservants Saveresourcesonstaffwelfare(e.g.medicalserviceandMPFcontributions)

Staffmanagementisoutsourcedthroughoutsourcingofpublicservicedelivery

Fewersupervisorygradeofcivilservants Stafftrainingtodeliverpublicserviceperformedbycontractors

TransferalofOperationalRisk

Businessmarketismorereadytocopewithchangingenvironment(e.g.fasttoemploymoreparttime/contractstafftohandleincreasingworkload)

Contractorshaveexpertiseandextensiveexperienceintheirownbusinessfield

Flexibilitytomeetfluctuatingneeds

Avoidunderutilizationofstaffandotherresources

Notallpublicservicerequiredfixedsetofstaff(e.g.cateringserviceandenvironmentalhygiene)

Projectbasedpublicservice

GovernmentOfficialsGovernmentOfficialsviewonQualityviewonQuality

Governmentsexpectations

To improveexistingservices

Tomeetincreasingdemandsandnewservicerequirements

Togainaccesstonewskills

andtechnology

Satisfaction Survey

Effective monitoringsystem ServiceLevelAgreement KeyPerformanceIndicators

MarkingSchemeandTwoenvelopesystem(technicalandcost)intenderingexercise

SatisfactionSurvey

Fulfilledthekeyobjectives

SatisfactionSurvey

Technicalweighing Betterqualitysolution

SatisfactionSurvey

B/Dsinvolvebestpracticesinoutsourcingactivities

QualityAssuranceestablishedmechanism

Beforeoutsourcing Thedecisionmakingframework Termsandconditions,tenderingprocedures

TenderEvaluation ContractMonitoringandReview FeedbackfromContractors 3rdpartymonitoring

PerformancemonitoringmechanismadoptedbyB/Ds

ChallengeAhead

Lackofexperience/experts? Diminishedgovernmentcapacity? Downsizingthegovernance?

Accountabilityonservicequality?

FutureDevelopment

Contractmanagement

Concentrationoncorefunction

OutsourcingITserviceinHousingAuthority

Three main types of IT outsourced project :

1. Application Maintenance

2. Operational Support3. System Integration

Project

OutsourcingCleaningService inFEHD

Ahighqualityservicespecificationhasthreekeycharacteristics:

Primarilybeingoutputbasedandnonprescriptive;Focusingonkeyissuesandobjectivestobeaddressedintheoutsourcinginitiative;

GovernmentOfficialsGovernmentOfficials ViewsViewsontheSocialandEconomicalontheSocialandEconomicalInfluencesofOutsourcingInfluencesofOutsourcing

Social,EconomicalandPoliticalInfluencesofOutsourcing

TheGovernmentoutsourcingexpenditurevariedfrom$44.1billionto52.0billionfrom2006to2010.

OutsourcingisaveryimportantmodeoftheGovernmentspending.

HongKongsocial,economicalandpoliticalactivitiesareunderhugeinfluencebytheGovernmentsoutsourcingactivities.

Social,EconomicalandPoliticalInfluencesofOutsourcing

ExecutionoffiscalpolicybytheGovernment

Pursuingpolicygoalsasamarketforce

Promotinglawabidingbehaviorinthebusinesssectorasamarketforce

OutsourcingExecutionofFiscalPolicy

TheBasicLawArticle107impliesthatevenintheadverseeconomicsituation,theGovernmentislegallyobligednottorunalongtermbudgetdeficit.

TheGovernmentisusuallynotwillingtoincreaseitsrecurrentspending,soithastoturntooneoffexpenditureitems.Outsourcingseemstobethebestoption.

Duringtheadverseeconomicsituation,theGovernmentcaninitiatenewprojectsorspeeduptheongoingone.Thisactionmightleadtobudgetdeficit.

OutsourcingExecutionofFiscalPolicy

Morepeoplecanbeemployedintheseprojects,alleviatingtheunemploymentproblem.

Increasingoutsourcingscalecanimprovetheeconomicsituationofthesociety.

Whenthelocaleconomygetsimproved,theGovernmentcanreprioritise theongoingprojectsorevenstoptorunadeficitbudget,meetingthebalancedbudgetrequirementintheBasicLaw.

OutsourcingExecutionofFiscalPolicy

PossibleProblems

Buildingwhiteelephantswithlittlesocialoreconomicvalues.

WorkersofoutsourcedpublicserviceswouldbefirediftheGovernmentterminatedtheoutsourcedservices.

OutsourcingPursuingPolicyGoals

2011/12PolicyAddress,Para.159:

TheGovernmentwillencouragethelocalindustrytodevelopadvancedcloudcomputingtechnologiesandapplications. Inthenextfewyears,wewilldevelopagovernmentcloudplatformandprocurepubliccloudservices.

OGCIOWebsite:

TheprimaryobjectivesoftheGovernmentIToutsourcingpolicyaretoenlargethedeliverycapacityforITservices,toacceleratethe deliveryofITsolutions,andtocreateamarketofsufficientsizetoencouragethefurtherdevelopmentoftheITindustrylocally.

OutsourcingPursuingPolicyGoals

OGCIOhastwomainestablishedoutsourcingarrangementsforBureaux andDepartmentstoprocureICTservices:

StandingOfferAgreementforQualityProfessionalServices2(SOAQPS2)

T22Contracts

OutsourcingforICTservicesisconsideredasoneoftheGovernmenttacticstoencouragethegrowthoftheHongKongICTsector.

OutsourcingPursuingPolicyGoals

Asannouncedandwitheffectfrom1September2009inCEDDs NoticeforGrabmountedDumpTruck,allthegrabmountedtrucksworkingforpublicworkscontractspublicworkscontractsshouldbeinstalledwithsuitablecoverwhichcanbeoperatedsafelyandpreventthereleaseofdustduringtransportationofconstructionwastes.

OutsourcingPursuingPolicyGoals

Theaimsofthispolicy:

Tominimise thedustduringthetransportationofconstructionwaste.

Topreventthetruckfromoverloading.

Toprovideasaferworkingenvironmenttothedumptruckdrivers.

Thedumptruckdriversarediscouragedtoarguewiththeirclient(theGovernment)todetertheimplementationofthescheme.

Thisenvironmentalandpublicsafetyfriendlymeasurecanbeimplementedwithminimumopposition.

OutsourcingPromotionofLawAbidingBehavior

FromContractorManagementHandbook RevisionB issuedbyDevB,poorsitesafetyrecords,poorenvironmentalperformance,courtconvictions(e.g.contraventionofsitesafetylegislation,EmploymentOrdinanceandemploymentofillegalworkers),violationoflawsrelatedtopublicsafetyandpublichealthmayleadtothetakingofregulatingactionsbytheGovernmentagainsttheContractors.

AntiPollutionLegislation

OccupationalSafetyandHealthOrdinance(Cap.509)

Section17Ior38AofImmigrationOrdinance(Cap.115)

EmploymentOrdinance

OutsourcingPromotionofLawAbidingBehavior

Possibleregulatingactions:

SuspensionforbiddingGovernmentscontracts.

Downgradingthevendortoprobationarystatus.

DemotionthecompanytoalowergroupofApprovedSupplierListwhichcanonlybidforlowervaluecontracts.

Thebusinesssectorisdiscouragedtopollutetheenvironment,ignorethehealthandsafetyoftheiremployees,employillegalworkersortreattheirworkersunfairly.

ContractorsContractors ViewsViews

Contractors ViewforOutsourcing

As at 1 July 2010, there were 5 111 government outsourcing service contracts each costing over $150,000, comprising 1 136 works contracts (22%) and 3 975 non-works contracts (78%).

Extract from Report on 2010 Survey on Government Outsourcing (May 2010)

Contractors ViewforOutsourcing The number of outsourcing contracts increase has continued to rise

from 3 984 in 2006 to 4 339 in 2008 and further to 5 111 in 2010 Welcome Outsourcing as Business Opportunity

Extract from Report on 2010 Survey on Government Outsourcing (May 2010

OutsourcingTopThreeAttractionsofGovernmentContract

Securepayments(90%,3%);

Buildupcompanyimage(65%,3%)

Open,transparentandfairprocurementprocess(50%)

NGOs&InterestGroupsOpportunityforInvolvementinPublicManagement

Extract from Report on 2010 Survey on Government Outsourcing (May 2010

OutsourcingImpactoncostofPublicServicesDelivery

Bestmethodtosavethecost&

lowertheoverallexpenditure

No Bureaucraticprocurementprocedure

Purchasegoodsmorequickly

Negotiatebetterprices Maintain lowerinventories

Flexible position tohire, dismiss andpromoteemployees

Profitoriented

OutsourcingImpactoncostofPublicServicesDelivery

LowestBidder Practice

Extract from Report on 2010 Survey on Government Outsourcing (May 2010

OutsourcingImpactoncostofPublicServicesDelivery

Cutcost Exploitationofworkers,Bidrigging(Collusion).

SavingFinancialCostofContractor PassingPoliticalCosttoGovernment

Case ContractCAinBD&EMSD 8

1,2001,50088,000

OutsourcingImpactsonPublicServiceQuality

In2007,theAuditCommissionhadconductedareviewofgovernemnt outsourcing,whichcoversthreedepartmentshavehadsubstantialoutsourcingactivities,theyareFEHD,LCSDandHD

Attainmentofcostsavingsthroughoutsourcingservies. Littleinformationonperformanceinformationontheservice

qualityimprovments achievedthroughoutsourcing. Inadequatemonitoringoftheperformanceofoutsourcing

contractorsbythedepartments

OutsourcingImpactsonPublicServiceQuality

Nocontractterminationduetounsatisfactoryperformanceofthecontractorduringtheperiodof1July2009to30June2010

Finalresponsibilityofprovidinggoodoutsourcedpublicservicesremainswiththedepartment,whichdrawsuptheoutsourcingcontractandexerciseeffectivemonitoringrole

OutsourcingSocial&EconomicImpacts

EconomicDevelopment Developmentofaknowledgebasedeconomy

Oligopolyofparticularservice

BidRigging&Collusion IncreaseinvolvementofSocialEnterprise&InterestGroups

CivilSocietyCivilSocietysViewssViews

CivilSocietyexpectation Cost&Quality Similarorevenbetterservicequalityfromprivatesector

Lowertaxwithmorepublicservices

CustomeropinionsurveyLSCDsportsfacilities

Target:Usersoffacilities ComparetheserviceoftheSportsCentreandSwimmingpool(Outsourcedvs Selfmanaged)

ThescoreforoutsourcedandLCSDmanagedcentreare7.5and7.65pointsrespectively(010pointsscale)

CustomeropinionsurveyLSCDsportsfacilities

CustomeropinionsurveyBuildingmanagement

LeiChengUk EstateandTaiHangTung Estate

ManyresidentsagreedthattheservicesofprivatecompanyisbetterthanHousingDepartment(around40 50%)(e.g.Patrolfrequency,Visitorregistration,servicehour,accessibilityetc)

Theotherservicesqualityareroughlythesame(e.g.Cleanliness,buildingrepairworks,buildingmaintenanceetc)

CustomeropinionsurveyBuildingmanagement

Negativeview Cost&Quality

Smallprofitmarginofthecontractmayleadtopoorservice

Poorequipmentandlackingcontingencyplan

AffectGovernmentimage Civilservantneedtoshoulderresponsibilityforpoorqualityofoutsourcedservices

Negativeview Cost&Quality

SocialimpactLabour exploitation

Underpay Nosalaryincrease Nocareerprospect

Socialimpact

Labour exploitation

Nojobsecurity Lowstaffmorale Insufficientpenaltytocontractor

Statutoryminimumwage

Conclusion

Cost ServiceQuality

Socialimpact

Government

Contractor

CivilSociety