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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

The United Kingdom government’s Cabinet Office (the central procurement department for central government) is requiring major government suppliers to draft “living wills.” These are intended to safeguard the provision of services to the public sector in the event of the collapse of a supplier.

This measure follows the insolvency of outsourcing provider, and major government supplier, Carillion in January 2018. The well-documented Carillion collapse led to significant debate about the role of outsourcing within the UK public sector, with pronouncements about the extent to which outsourcing for the public sector has “fallen out of fashion.”

A possible Labour Party–led government, under which Leader Jeremy Corbyn has vowed to impose very strict restrictions on central and local government before a decision is made to award government contracts to third-party private providers, also looms as a very real threat to the public outsourcing sector.

Of course, one can’t discuss the UK public sector in the current climate without mention of Brexit. The continued uncertainty about the timing and nature of Brexit, along with the resource constraints that Brexit-related activities are placing on UK public authorities, has led to—in our experience—public departments favoring short-term, tactical procurements, with extensions and renegotiations being the preferred path at this time.

One potential advantage of the UK leaving the European Union would be a revisiting of the EU public sector procurement rules, which are implemented by the UK and which often act as a straitjacket on substantive engagement and dialogue between the public and private sectors. These rules have not necessarily increased transparency in respect of award decisions, nor have they avoided issues such as the Carillion collapse. For example, Carillion was still being awarded public sector contracts just months before its collapse. The living wills can certainly be viewed as a constructive and positive step by way of the explicit goal of contingency planning, but also the manner in which outsourcers will likely need to more fully and freely share crucial data with the UK government in respect of the contracts they service.

The UK public sector outsourcing market, which was, until just a few years ago, clearly the second largest outsourcing market after the United States, continues to face significant headwinds. However, within the next few years the cycle will most likely return to a more strategic and macro-level focus on outsourcing, new technology procurement, and alternative methods of public/private partnerships. Outsourcing providers will be hoping for a relatively quick resolution to the major questions regarding the UK’s relationship with the EU—and that the UK government does not desire to radically reduce its relationship with the private sector.