After decades of exponential growth, outsourcing has spread to virtually every industry, encompassing both the public and private sectors. Government outsourcing refers to public services and works provided by a private firm or third party. Government outsourcing contracts usually transfer control and other rights to the third party, while the third party receives financing, investment, or payment for services.
Typically, governments outsource non-core functions like customer care, information and technology services, data management, construction, waste management, food service, pension management and the like, while retaining core functions like law enforcement, tax collection, fire safety and military operations.
However, governments have outsourced highly critical functions recently, like security during the London Olympics and military equipment manufacturing in the U.S. Iraq and Iran campaigns. A small American town that has gone bankrupt has even outsourced law enforcement to another, better-functioning municipality.
Government Outsourcing Case Studies
Internal Administration Services
Information Technology Services
Commonly outsourced services in the public sector include:
Offshore Government Outsourcing
Outsourcing at the national, state and municipal levels can be a powerful tool to improve performance, drive innovation and leverage advanced technologies. According to a study by the City of Colorado Springs Sustainable Funding Committee, many cities across the United States have successfully used an outsourcing model to reduce costs, regain focus on core activities, increase revenues and improve the quality of services. The following case studies illustrate how a carefully executed outsourcing campaign can help organizations achieve high performance:
In 2001, the city of New York, NY partially outsourced its 311 municipal call center that employed about 1,000 employees. Then Mayor Michael Bloomberg led the reorganization of the call centers by outsourcing part of the operations to third parties during peak periods.
Contract-based customer service workers helped callers with their concerns and a translation services company handled foreign-language calls. By outsourcing contract-based call center employees, the city reduced costs during peak periods and provided quality services to non-English speaking residents.
The government of South Australia first outsourced its mainframe computing platform in 1994 as part of a strategy to reduce costs, improve IT efficiency, reduce complexity and achieve economies of scale. The long-term outsourcing program is still ongoing as of 2015, reducing application response times by 97 percent, improving productivity and service quality. The state also avoided a $3.1 million capital expense by upgrading the mainframe environment through the outsourcing agreement.
Back office support. Low-skilled back office services and support are the most commonly outsourced functions in local and central governments. Private enterprises help government agencies reduce costs and boost efficiency with mailroom services, translation, data processing, data entry, loan and fund administration, procurement, registration and accreditation.
Customer care. Another top outsourced function is customer support. Third parties provide call center support and tech support to government news and information agencies, legal departments and other public entities.
Finance and accounting. Just like private organizations, public agencies outsource general accounting, payroll and other finance services to third parties.
Human resources. Third parties provide complete HR and payroll solutions for government agencies. This can be in the form of recruitment consulting specialists, payroll administrative staff, or an employee training program.
Information technology. Government agencies looking to improve service quality and reduce costs partner with experienced IT providers for process reengineering, upgrades, infrastructure, and cloud services.
Governments must decide whether to outsource services locally or offshore. Contracts that are heavily regulated and require stringent data security are often kept-in house or outsourced to local providers. Services like web and app development, IT and infrastructure, contact support and data management can be outsourced to preferred offshore outsourcing destinations like the Philippines and experienced service providers such as Sourcefit.