SAM HURLEY. Outsourcing doesn’t help our neediest citizens.

Dec 7, 2016

Outsourcing of employment services has failed to make significant headway on better outcomes for the most disadvantaged clients. 

Political and policy memory has become a hot topic over the past year. In November 2015, two months after Malcolm Turnbull became our fourth prime minister in as many years, journalist Laura Tingle put Australia’s collective failure to deal with pressing policy challenges down, in part, to what she called “political amnesia”. Without clear memory of the historical context for policymaking, she argued – without a clear sense of what has been done in the past and why – the scope for nuance disappears. She said this meant that today’s decisions are too often taken at face value – as “the inevitable outcome of current circumstances”; the products of debates conducted solely in the present tense. She argued that the political and policy institutions that could guard against this are being worn out, including the store of experience and capability in the public sector.

As Tingle’s Quarterly Essay was doing the rounds, I was working on a Centre for Policy Development research project on the 20-year evolution of Australia’s outsourced employment services system. We were looking at how the public sector’s role had changed as it transitioned from a provider of frontline employment services, through the old Commonwealth Employment Scheme, into a contract management role for a network of external providers from the private or not-for-profit sectors.

The question we were interested in was what this experience suggested about how the broader trend toward contracting (or “outsourcing”) human services affected governments’ ability to tackle disadvantage and ensure effective services to the most vulnerable people and communities. We looked at results in the case of employment services: mixed at best, especially if you care about things other than cost. But what we really wanted to understand was the longer-term effects on public the sector’s capability to design (and where necessary deliver) more effective services, and develop better policy, over time. It was here that Tingle’s warnings about the consequences of eroding memory rang true.

The latest iteration of the employment services model, “jobactive”, had just rolled out when the new Prime Minister slipped into The Lodge last September. Like its predecessors – three since the mid 1990s, under a rolling series of tenders and contracts with private and not-for-profit service providers – jobactive offered a series of rejigs and realignments to patch over gaps and deficiencies under the last regime without opening up too many new ones.

Like their forebears, the departmental experts charged with the latest redesign faced a highly improbable, if not impossible, task. Unemployment is a whole-of-economy, whole-of-policy issue: it’s influenced by macroeconomic conditions and community-level factors and everything in between, including the full range of human services in education, health and elsewhere. The “caseload” is large and equivalently complex. Many people who use employment services, particularly among the nearly 200,000 people who were unemployed for a year or more as of mid-2015, face “multiple and entrenched disadvantage” and complex, interrelated barriers to getting work.

All the evidence suggests that doing better for these people – providing services that can materially improve their prospects of finding and holding down employment – is very difficult, and commensurately expensive. Meanwhile, the logic of outsourcing means those who design the service system are asked to come up with better services at lower cost. Moreover, they are far removed from the frontlines in the private and not-for-profit sectors where the services are actually delivered, and where the jobs and job seekers are. The days of having senior policy people with lived experience providing services are mostly a memory. Today, the consultants who provide services to job seekers at the frontline at private or non-for-profit providers are, on average, lowly paid, overworked and inexperienced. At every level, people have been asked to do more with less: less money, less memory, fewer tools, less time.

Understandably, under those circumstances, the record of employment services in the two decades since the outsourcing experiment began has been mixed. The data gives an overwhelming sense of a two-speed system. For job seekers with reasonably good employment prospects, the new approach has generally delivered decent results, at lower cost over time.

But for the most vulnerable and disadvantaged jobseekers – with low or obsolete skills, long-term unemployed, in at-risk groups or regions, or (or more often, and) complex personal, health and other challenges – poor outcomes seem intractable. In the last 12 months of Job Services Australia, which preceded jobactive, up to three-quarters of the most disadvantaged job seekers in vulnerable cohorts (including youth, long-term unemployed, sole parents and Indigenous Australians) who had used employment services remained unemployed or had stopped using employment services altogether. For a model heavily premised on “activating” job seekers by keeping them looking for jobs under threat of withdrawal of welfare payments, this is a startling result. Costs have indeed fallen but, despite continued recalibrations and the odd pocket of improvement in the quarterly or annual reporting data, the outsourced system has failed to make significant headway on better outcomes for its most disadvantaged clients.

In some senses, outsourcing has failed to deliver even on its own terms, in part because of its inherent limits and realities. Competition is meant to deliver better, cheaper, more tailored services, and more choice. But it can be illusory: in employment services, a system that used to include more than 300 providers has seen consolidation to about 50, dominated by larger players. Where competition does exist, it can create barriers to sharing data, ideas and innovations that work. At the same time, the need to monitor performance and prevent rorting by contractors creates inflexibility, risk-aversion and major compliance and reporting burdens. Overlaying all of this is the all-too-real risk of perpetual underfunding when narrow notions of “efficiency” and cost minimisation become the guiding philosophy for service provision.

The changes that have been introduced through the various iterations of the contracted-out employment services model have focused on managing these tensions and risks rather than reassessing (much less re-imagining) the system itself. The priorities are dictated by the particular shortcomings of the previous model and the budget envelope rather than any appetite or licence for major change. This process of ongoing recalibration, combined with fluctuations in economic conditions, makes it difficult to compare performance across different models or programs. And, over time, the policy capabilities and tool kits needed to undertake more significant reform of the system are eroded, as a narrower set of specialised contract management skills are prioritised. The risk is that, even when outcomes are poor, policymakers and providers are stuck with a self-perpetuating, path-dependent cycle of procurement and renewal that crowds out alternatives, including those that require a more active or dynamic role for the public sector.

The days of having senior policy people with lived experience providing services are mostly a memory.

These concerns apply with equal force not just in employment services but potentially across a whole range of areas where service delivery is contracted out. And the consequences are profound. In an immediate sense, poor outcomes or underperforming services have a very real impact for the vulnerable people who rely on them most. In the longer run, push toward privatisation and narrowing of public sector capability can do lasting harm to governments’ ability to respond to disadvantage and inequality. This is compounded by broader underinvestment in public sector capacity and, all too often, ideologically-driven public sector budget and staff cuts.

These add up to something even more damaging. Government’s ability to address disadvantage is fundamental to its standing. Many actors have roles and responsibilities in this area. But even where direct accountability for a particular service area or outcome is mixed or blurred – where, say, delivery of key services is funded by government but outsourced across different providers – it’s government that will ultimately be held to account for entrenched, intergenerational failures. The role of government will inevitably change, but that fundamental responsibility, and expectation, won’t. The public doesn’t want excuses or alibis: it wants results. Advancing well-being and addressing disadvantage is pivotal to government’s moral and democratic legitimacy. And while some political leaders are inclined to forget that, the public isn’t. Out-of-touch, ineffective, indifferent government from afar – in fact or impression – is bad politics, as well as bad policy. If that wasn’t clear before Brexit, Donald Trump and a close-run Australian election defined by Labor’s commitment to protecting crucial public services like Medicare, it should be now.

This isn’t to say that preserving capability and policy memory means looking backwards for old answers to new problems (like a return to monolithic public sector delivery of employment services). It’s as much about guarding against the sentimental view that we can revert to earlier, easier answers as it is maintaining the skills and expertise to identify and fix the problems we face today.

There are exciting opportunities to do things differently, whether through public, private or mixed models. This includes through new “commissioning” approaches, provided these aren’t just deployed as a rhetorical cover for a one-track, contracting-out agenda. Equally, in some areas, there’s clearly a need to rebuild capability where it’s been lost, as well as build up the new skills needed for today’s more complex service design and delivery roles. The contrasting approaches of the Andrews and Baird governments, with the former focused on rebuilding public capability and the latter embarking on a new “commissioning” drive, show just how much is in contention and at stake.

These debates will be ongoing – and if we want to influence them, we as advocates for an effective public sector must be prepared to look forward as well as backward for ideas about what might work. In the meantime, when it comes to outsourcing, the evidence and experience from employment services and elsewhere reinforces one timeless piece of advice: remember to always think twice.

Sam Hurley is the policy director at the Centre for Policy Development. This article appears in the Australian Fabians’ latest pamphlet, Reforming the public sector for a more equal society, available at

Share and Enjoy !


Receive articles straight to your Inbox

How often?

Thank you for subscribing!