Outsourcing Not The Answer
Oct 26, 2007
About two years ago, the Government of Manitoba began looking at ways of centralizing some of its payroll, invoicing and employment record-keeping services. The Winnipeg Regional Health Authority (WRHA) was facing a multi-million dollar cost to upgrade computers and software and to centralize these functions into one main office. Presently, accounting services are done by each hospital and personal-care home.
Deciding that the price tag for the required upgrades was too steep, the Province ultimately made the decision to contract out these services. Three companies had submitted proposals to take over the administrative services, and now one remains and is in negotiations with the government. A final agreement is anticipated in the next few months.
But there are concerns that ought to be raised about contracting out these services. Aside from the irony inherent in the fact that this is happening with a government generally opposed to contracting out, taking this approach is just not good public policy. It is very likely that it will end up costing more to outsource these functions that it would be for the government to do them in-house. It also gives control of important administrative functions to an outside agency and thereby removes them from government control.
So why would the government be taking this step, assuming that they realize that contracting out would not really save any money, and could very well end up costing more? Because it’s more politically palatable to fund an outsourced service like this from general government funds. If, however, the government had decided to undertake these upgrades and improvements on their own, the monies required for this substantial project would have to be sourced from the Department of Health. Given the focus on health care that dominates public discourse, the optics of spending that much money on non-front line services might indeed be less than optimal to the media and the general public.
This isn’t to suggest that there could never be a legitimate case where it would be prudent and cost-effective to engage the private sector in the delivery of non-essential service. But the only reason for outsourcing these administrative services seems to be political, even though it could end up costing Manitobans more by taking this action. It would be hoped that the government will take a long, hard look at this matter before it makes a decision that it could regret down the road.
Comments
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If the contract is between the WRHA and EDS how could the funding come from “general government funds”? I don't think the cause of this outsourcing is as simple as which budget category the money comes from. And it isn’t about tax rules either. I suspect the real reason is the stagnation, inflexibility, and resistance to change the NDP government sees in many of our departments. The idea that “what has worked for 20 years is still good enough” is obsolete. It is an idea that is no longer tolerated in the outside world. What is expected today is continuous innovation and improvement in processes and methods. Outside of government, successful companies look for increases and improvements in efficiency each year. Executives and managers who cannot deliver these improvements, who cannot work with their staffs to deliver these improvements, are shifted out. What the NDP is doing is keeping the executives and managers, and shifting the staff out. Collectively, many departments have resisted change so strongly that our NDP government is willing to take the work away from us (take our jobs away from us) and give it to a US based multi-national. All civil servants have been tarred with the same brush. Instead government should have looked closely at each incident of change resistance and of turf war, looked at who was resisting change, who was fighting pointless turf wars, arranged education for them, and if they still resisted changed, moved those specific people aside. Maybe I am wrong, but that is what I think about the cause of this, this … betrayal?
Anne - 2007-10-28 23:11
What about the rumored plans to make take e-Health out of the WRHA, to put it into a separate SOA, and then to do the same with the IT departments of all the other RHAs. What will happen to the people working in those other RHAs? Are they going to have to move to Winnipeg?
Anne - 2007-10-28 23:23
As far as the citizens of Manitoba being concerned about this thing, I imagine EDS's real target is the electronic health records system that has been slated for development. This will be the real big bucks money making system for them. Creating the new electronic health records system will mean EDS can pretty well charge what it wants to maintain it. It will be as difficult for the RHAs to replace EDS as it would be for MPI to replace EDS. It will mean that a US-based company will have access to the most intimate physical and mental health records of Manitobans. In the post 9-11 world can we trust US-based companies with that kind of information? EDS will need routine access to our medical records the same way it needs this routine access to MPI’s records on us, in order to be able to solve problems in the computer systems. Most computer system problems involve unexpected data, and you need to look at the actual data to solve the problem.
Anne - 2007-10-28 23:25
For organizations in general, I think these are the common reasons for outsourcing IT projects. 1. IT systems have two main phases: a development phase lasting 2 to 3 years, and a maintenance phase that lasts as long as the system is in use, typically 20 to 30 years. 2. The outsourcer is willing to loose money developing the system, so they under-bid the development phase. 3. The customer gets a new system for less money that it would require to write the new system in-house. 4. The customer's executives are happy because they get all the benefits of the new system, but most of the costs of development are deferred until the terms of future executives. 5. The outsourcer recoups his loss many times over during the maintenance phase of the project, when the outsourcer can charge what he wants because there is no competition to realistically bid against him. Item 4 could also be achieved by issuing bonds or taking out loans, but then the deferred liabilities would be visible. The downside of deferring liabilities for the project using outsourcing is that the organization becomes totally dependent on the outsourcer, and is at the outsourcer's mercy when contracts are renegotiated or disputed. Using bond and loans to defer the liabilities for the project, if one lender decides to walk away, the organization can generally find another lender.
Anne - 2007-10-31 00:47