Britain Was a Pioneer in Outsourcing Services. Now, the Model Is ‘Broken.’


For years, outsourcing seemed to accomplish those goals by and large, making Britain the second-largest market for outsourcing in the world, after the United States.

But recently, outsourcing has come under fire, not only from the leader of the opposition Labour Party, Jeremy Corbyn, but from parts of the British government itself.

A report by the government’s National Audit Office shows that taxpayers are expected to pay nearly $285 billion to private contractors for projects and services over the next 25 years. The agency also found that with changing economics, schools could cost 40 percent more, and hospitals 70 percent more, when undertaken through private-finance initiatives rather than though the government.

Nearly a decade of austerity budgets and declining funding for local governments, which pay for many outsourced services, has badly strained the system.

The spectacular collapse last month of Carillion, the British government’s biggest outsourcing contractor, and signs of deepening financial problems at Capita, another major British contractor, which suspended its dividend on Wednesday, have only underscored the troubles.

“The model is flawed, it’s broken, it’s got cracks from top to bottom,” said Nick Hood, a social care expert and an adviser at Opus Restructuring, an insolvency specialist based in London.

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The collapse last month of Carillion has underscored troubles in the outsourcing system.

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Daniel Sorabji/Agence France-Presse — Getty Images

Nowhere are the problems more glaring than in the care of the elderly and those with disabilities. A third of Britain’s 5,500 care providers are at risk of failure, Mr. Hood said, a rate well above other sectors of the economy.

Last year, Cleeve Link, a major company providing home care in southwestern Gloucestershire, went into liquidation. The Gloucestershire County Council covered hardship payments for the staff, and even provided free gasoline for home care aides so they could continue looking after their patients.

“We went into a crisis mode,” recalled Margaret Willcox, president of the Association for the Directors of Adult Social Services, who was involved in the takeover of Cleeve Link’s services. “If shareholders suddenly decide they want out from the business, you’re completely stranded.”

At the heart of the issue is whether Britain can afford high-quality services at a time of relentless budget cutting. The problem has worsened with Britain’s withdrawal from the European Union, which has slowed growth and led to an exodus of young, foreign workers.

“The British government allowed itself to offer a Swedish-style public sector while only being able to raise an American level of taxes, putting massive permanent pressure on the government,” said Tony Travers, a professor of government at the London School of Economics.

Governments have become good enough at driving down the prices of contracts, he added, that companies struggle to make a profit. Carillion collapsed in part because it had underbid for contracts that became unsustainable when it ran into delays and cost overruns.

That pattern seems to have played out at Millbrow, which has been taken over by the local council while the company restructures.

Clients in the British system fall into two broad categories: those who are self-financed, and those whose care is paid by the local council. But providers and health care experts said that local governments typically fund little more than half the actual cost, forcing providers to charge higher rates to self-funded residents.

Four Seasons, the provider, says it had trouble recruiting and retaining staff, forcing it to rely on temporary workers. “The home had not been financially sustainable and had been making a loss for some time,” the company said in a statement. “So we were effectively paying to provide care.”

As conditions deteriorated, both care givers and the relatives of residents said in interviews, a revolving door of managers led to frequent breakdowns in communication, to the point that no one was aware the home was nearing collapse.

Staffing levels on a floor caring for residents with dementia were “horrendous,” said Lisa Riley, a 39-year-old care giver. At one point, she said, there were only four employees to look after 35 people. This meant some could not be supervised around the clock and would wander, sometimes tripping and falling. “We tried, that’s all we can say,” she said.

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The takeover of Millbrow has led to improvements such as upgrading the fire alarm system.

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Andy Haslam for The New York Times

Public inspectors found residents at risk of choking because they were not made to sit upright when they ate. Staff members were seen handling soiled laundry without wearing gloves, the inspectors added in the government report, and cushions and other material were “heavily contaminated, and had a strong malodor.”

In the last year, at least 13 nursing homes run by Four Seasons have either closed or, like Millbrow, been taken over by local councils.

One home in South Hampshire that closed had to transfer its elderly residents. Within a month, five had died, according to a former employee.

“Some of these people should not be moved because they’re not going to last,” said the employee, Lynne Wells. “And they didn’t. A lot of these people are in their 90s. It’s just so sad really.”

Saddled with $700 billion in debt, Four Seasons is in restructuring talks with an American hedge fund, H/2 Capital Partners, which holds most of the debt. Adult care experts worry about the ramifications if a major company like Four Seasons, which cares for about 17,000 elderly people, should collapse like Carillion.

According to experts, care homes in Britain do not make close to the 15 percent returns that private-equity companies typically look for.

The “pernicious pincer movement on profits,” said Mr. Hood, the insolvency specialist, has prompted some providers to end contracts with local governments or refuse services to publicly funded residents “because it’s cheaper to leave the beds empty.”

Last year, Mears Group, another prominent care provider, ended a 15-year contract with the Essex Council, saying the payment rate fell short of what was recommended by an industry association. “Mears believes that no organization can deliver a care service at the new rate safely or legally,” the company said.

Eventually, said Mr. Hood, “the government will have to take the care home market in some form of public partnership. It will have to.”

At Millbrow, local officials say they are able to provide better care than Four Seasons had, even on the same budget, because they do not have to squeeze out a profit and be accountable to shareholders.

On a recent visit, electricians were seen installing wiring for a new fire alarm system. Schedules for “infection control training” and “moving and handling refreshers” were posted on a whiteboard nearby. Staff were being trained how to deal with patients with dementia. In the back garden, builders were looking at fixing what had been open sewers.

“Everything revolves around money,” said Ms. Riley, the care giver, as she gave a resident her noon meal. “But at the end of the day it’s about vulnerable people. We need to take care of them.”

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