426319

2012
WES26110.1177/0950017011426319SmithWork, Employment & Society

Article

Work, employment and society

‘Monday will never be the same 26(1) 95­–110

© The Author(s) 2012
Reprints and permission: sagepub.
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DOI: 10.1177/0950017011426319
employment and work in wes.sagepub.com

a public-private partnership

Andrew Smith
Bradford University, UK

Abstract
Under the public-private partnership (PPP) programme, private sector finance, management expertise
and innovation are used in ‘partnership’ to modernize public services. However, advocates fail to
account for the differing aims and responsibilities of the public and private sectors, in that private
companies plan to make a profit out of non-profit public sector organizations. There is a paucity of
critical empirical research into new ‘partnership’ forms of privatization and the implications that
these have for employment and work. This article will examine the PPP of National Savings and
Investments (NS&I) and some of the initiatives introduced and problems encountered, which resulted
in the creation of a multi-tier workforce, together with the insourcing, outsourcing and the first
ever offshoring of UK Government work to India.

Keywords
civil service, insourcing, modernization, multi-tier workforce, offshoring, outsourcing, privatization,
public-private partnership

Introduction
The public-private partnership (PPP) of National Savings and Investments (NS&I) is the
largest outsourcing of civil service work in Britain. OutsourceCom were awarded the
contract in April 1999 and have to modernize operations and deliver the service. All 4100
operational staff had their employment transferred and the company emphasized the oppor-
tunities they would create through new capital investment, management expertise and the
insourcing of third-party business. This must be viewed in the wider context of public
sector and civil service modernization. However, the PPP signalled a series of dramatic
and rapid transformations.

Corresponding author:
Dr Andrew Smith, Bradford University School of Management, Emm Lane, Bradford BD9 4JL, UK.
Email: A.Smith14@bradford.ac.uk
96 Work, employment and society 26(1)

Well established political and economic claims are driving privatization, with the
private sector being portrayed as creative, flexible and efficient, in contrast to the public
sector, which is criticized for being bloated, ineffective and wasteful. There is a new
political consensus in the UK over privatization, as the recent Labour government adapted
Conservative policies of the private finance initiative (PFI) and public-private partnership
programme and reformulated them with a new prominence given to ‘partnership’.
Traditional privatizations involved the state selling off nationalized industries and public
utilities (Whitfield, 2001). However, there were often negative consequences with job
losses, cost cutting and subcontracting. What will be referred to in this article as ‘partner-
ship’ forms of privatization are (supposed to be) different as the private and public sectors
build on their combined strengths to deliver excellent public services (HM Treasury, 2000).
In keeping with earlier types of privatization, the UK is at the forefront of promoting PPPs
(Pollock, 2004; Whitfield, 2010). However, these are often complex and increasingly blur
the boundaries between the public and private sectors (Grimshaw et al., 2005).
Proponents of ‘partnership’ forms of privatization ignore the differing interests and
objectives of the public and private sectors. Namely, that private sector organizations are
motivated by profit maximization, which is fundamentally at odds with the ethos of the
public sector. However, there is little critical empirical research into the implications that
new ‘partnership’ forms of privatization have on employment and work, bar a few excep-
tions (see Grimshaw et al., 2002; Hebson et al., 2003; Taylor and Cooper, 2008); which
is intriguing, as PPP and PFI are major government policies. This article will explore the
contradictions and tensions inherent in ‘partnership’ forms of privatization, and the impact
these have had on employment and work at NS&I.
The following section sets out a theoretical framework through which to analyse the
public-private partnership of NS&I. The research methods are then discussed; these
involved interviews with long-serving trade union representatives and shop-floor employ-
ees. The main body of the article examines the application of ‘cutting edge’ private sector
management methods, such as the creation of a multi-tier workforce, together with the
insourcing, outsourcing and offshoring of work. In conclusion, the research contributes
to debates that challenge and critique the PPP concept.

Modernization, public-private partnerships and employment

The following critical review brings together key literature on public sector modernization,
change in the civil service and the PPP programme. Theoretically this will identify gaps
in the extant literature and raise a series of important questions and dilemmas to consider
regarding the public-private partnership of NS&I.
From the early 1980s onwards there have been a series of sustained and concerted
attempts by successive Conservative and Labour governments to modernize the public
sector; and the newly elected Conservative/ Liberal Democrat coalition have immediately
prioritized this in an attempt to reduce the budget deficit. Initially inspired by the neo-liberal
ideas of Hayek and Friedman, criticism was levelled at the public sector for being ineffi-
cient, inflexible and over-staffed. This contrasts with the private sector which was portrayed
as the model to emulate, as it was claimed to be more efficient, creative and effective. Thus,
sections of the public sector were privatized, and where this was not deemed possible,
Smith 97

private sector management techniques were introduced, under what became labelled ‘new
public management’ (Osborne and McLaughlin, 2002). However, the application of such
methods to the public sector has been criticized as being inappropriate (Du Gay, 2000),
given the fundamental distinctions between the two sectors in terms of ownership, goals
and responsibilities. The criterion for success in the private sector is profitability, and
companies are accountable to their owners and shareholders. In contrast, the public sector
provides services for the well-being of citizens, often where the market either has failed
or has been unwilling to deliver. The values the public sector pursues are of equity, justice,
fairness, neutrality and citizenship (Marquand, 2004). Hence, such organizations serve the
public interest, their goals are politically defined and, as such, play an important role in
democratic society (Farnham and Horton, 1996). Such differences are central to debates
over public sector modernization, and PPPs in particular.
Regarding the civil service more specifically, there has been a process of modernization
over the last three decades, involving commercialization and privatization (Burnham and
Pyper, 2008). Reform began in 1982 with the financial management initiative and the drive
for efficiency savings (Pilkington, 1999). The introduction of agency status throughout the
1990s resulted in the fragmentation of a national, centralized and unified civil service into
separate operational units (Horton, 1996). There was also ‘peripheral’ privatization under
the compulsory competitive tendering (CCT) and market testing initiatives (Pilkington,
1999). Much of the extant literature focuses on public administration and management,
but fails to address the impact that such changes had on employment. However, empirical
research by Fairbrother (1994) found that such restructuring resulted in an intensification
of work and eroded the notion of the state as model employer, with regard to terms and
conditions of employment, and security of tenure with fixed career paths (Bach and
Winchester, 2003). Similarly, Foster and Hoggett (1999) uncovered increasing workplace
pressures in the Benefits Agency and staff cynicism towards new management practices.
There has been little empirical research into the evolution of change in the civil service
after agencification. Foster and Hoggett do refer to new developments under the PFI initia-
tive, which raise fresh questions over public sector modernization.
The Conservatives launched the private finance initiative in 1992, where private com-
panies design, build, finance and operate building projects for the public sector. In 1996
the Conservatives set up the public-private partnership programme, where the private sector
provides new capital investment and delivers public services (Department of the Environment,
1996). Both policies were reformulated by Labour with a new emphasis on ‘partnership’,
where the customer service of the public sector works in tandem with the effectiveness of
the private sector. All PPP contracts are tied to stringent performance criteria relating to
quality, costs and productivity, as there is a transfer of risk to the private sector (HM
Treasury, 2000). There are a variety of PPP models, and there was a huge escalation of PPP
projects under Labour (Pollock, 2004; Whitfield, 2010). While acknowledging that there
were problems with previous privatizations due to cost cutting, Labour did emphasize that
PPP offered new opportunities and was not a threat to employment (Institute for Public
Policy Research, 2001). There is a broad political consensus over the advantages of PPP
in comparison to traditional methods of financing public services, namely: private sector
management and technological expertise, together with improved creativity, efficiency and
value for money. Furthermore, there will be new opportunities for workers through busi-
ness diversification (HM Treasury, 2000).
98 Work, employment and society 26(1)

There is an emerging body of critical theoretical and empirical research which questions
and challenges many of the purported benefits of PPPs. Firstly, PPP contracts are not new
capital investment; they are a debt that the government repays to the private ‘partner’ in
instalments over the duration of the contract (Gaffney et al., 1999; Pollock et al., 2002).
Indeed, this method is more expensive than direct government investment (Gaffney et al.,
1999; Pollock, 2004). Hence, in reality these are publicly funded services that are privately
managed and delivered (Whitfield, 2001). PPP and PFI schemes have resulted in a deepen-
ing and widening of privatization, as new areas of the public services are opened up to
competition (Pollock and Price, 2000; Whitfield, 2010). Furthermore, advocates of ‘part-
nership’ forms of privatization fail to account for the fundamental differences between the
public and private sectors (Smith, 2008), which raises a series of dilemmas.
There is a central tension over the public service ethos and the quest for profitability of
the private ‘partners’. One of the main claims for PPPs is the managerial expertise of the
private sector. However, in the case of the privatization of the railway industry, Railtrack
had no history in the sector (Strangleman, 2004). Hebson et al. (2003) found issues of poor
performance on PPP contracts. Furthermore, in the first global analysis of the PPP phe-
nomenon, Whitfield (2010) reveals that many projects were abandoned or terminated due
to escalating costs and overruns. At NS&I there are supposed to be new opportunities
through insourcing work. This raises questions over the amount and quality of work, together
with employment relations issues. Whitfield (2010) found very little evidence of job crea-
tion under PPP contracts. Furthermore, research on PFI hospitals by Ruane (2007) uncovered
the creation of a two-tier workforce and constant pressures over workloads and staffing
levels. Pollock et al. (1999) allude to downward pressure on terms and conditions and
predict downsizing. Similarly, Whitfield (2010) foresees the inevitable squeeze on wages,
and further fragmentation through outsourcing. Indeed, empirical research reveals tensions
over profit maximization and the quality of employment. Grimshaw et al. (2002) and
Hebson et al. (2003) investigated a range of ‘partnership’ forms of privatization and uncov-
ered cost cutting and understaffing. Furthermore, in a PFI prison, Taylor and Cooper (2008)
found poor working conditions and staff retention problems.
In certain respects, it appears that ‘partnership’ forms of privatization are similar to
traditional privatizations, resulting in inferior working conditions, rising workloads and
heightened job insecurity (Colling and Ferner, 1995). However, new dilemmas emerge
with a ‘partnership’ between the private and public sectors. Grimshaw et al. (2002) assert
that these new complex relationships raise tensions and conflicts over power imbalances
between the ‘partners’. Pollock (2004) and Whitfield (2010) go further in arguing that PPP
and PFI are fundamentally flawed models for the delivery of modern public services.

Research methods and organizational context

National Savings and Investments was selected as a case study because of its significance
as the largest PPP in the civil service, placing the organization at the cutting edge of public
sector modernization. Research access was initially sought through OutsourceCom senior
management, but they declined all offers to participate. However, access was successfully
negotiated through the independent Public and Commercial Services Union (PCS). In-depth
semi-structured interviews were conducted with five senior union representatives. The
Smith 99

officials had between 10 and 15 years’ union experience, and four were interviewed on
two or more occasions. The aims of interviewing senior representatives were to uncover
their stance and tactical responses to the process of organizational change, in particular
the PPP and the implications for employment.
Oral history interviews were carried out with 10 shop-floor employees at Durham
National Savings and Investments (DNS&I), to understand their experiences and percep-
tions of organizational change. The advantages of using the oral history method are that
by asking open-ended questions, respondents have the freedom to tell their story (Portelli,
2001); which develops the narrative and generates a rich data source. As no management
access was granted, a snowball sampling technique was utilized and many of the interviews
were conducted outside work hours. The employees interviewed had worked at DNS&I
for between 15 and 25 years, and three had recently taken voluntary redundancy. Data
analysis involved detailed coding of the interview transcripts and the development of broad
analytical themes (Bryman and Bell, 2007: chapter 22), for example, covering the PPP
process, redundancies and the insourcing of work. Traversing between the data and theories
on PPPs and modernization was an iterative process, as many key events were unfolding
during the research.
A number of documentary sources were analysed, including: NS&I Product Account
Reports, newspaper articles and union reports. The National Audit Office report of 2003
into this PPP was particularly useful as it details the bidding process, the difficulties
encountered by OutsourceCom and issues over profitability (NAO, 2003).
NS&I is a civil service department that was established in 1969 with three offices in
Durham, Glasgow and Blackpool respectively. It is a public sector organization that operates
in the financial services market and is used by the government as one method of financing
the national debt, by offering a range of savings and investment packages. Over £62bn is
invested in NS&I and it funds around 20 per cent of net government debt (NAO, 2003).
Prior to the public-private partnership, working at NS&I was considered to be a safe
and secure ‘job for life’, with relatively good terms and conditions of employment. However,
from the mid-1980s until the mid-1990s, NS&I was a department in decline, due to the
Conservative government’s decreasing reliance on the organization to fund the national
debt. During this period there was the privatization of catering, security and cleaning under
CCT, and the organization became an agency in 1996. While these changes were unpopular
with the unions and their members (see Smith, 2008), a more fundamental transition was
to take place with the outsourcing of the entire service delivery under PPP. The research
findings are presented in the following sections.

The public-private partnership of NS&I

Due to the Conservative government’s declining use of NS&I and its public expenditure
cuts, by the mid-1990s the organization lacked the new technology and e-commerce chan-
nels of other financial organizations. Hence, modernization was going to be very costly.
In 1996 the Conservatives invited tenders from the private sector and the PPP process was
completed by the first Blair Labour government.
As with privatizations of the past, multinational corporations are invading and monopo-
lizing markets (Grimshaw et al., 2002; Whitfield, 2010). In the civil service, these new PPP
100 Work, employment and society 26(1)

contracts are dominated by global corporations, many of which have diversified specifically
to penetrate new outsourcing markets. Hence, these corporations were desperate to win this
PPP contract, as it was the largest and, therefore, the most prestigious civil service outsourc-
ing deal. Indeed, many corporations are pressurizing governments to open up new areas of
the public sector to competition (Pollock and Price, 2000; Whitfield, 2010).
There were originally four companies bidding for this PPP contract, and OutsourceCom
budgeted to make their 8.7 per cent financial return in the long term. Their final bid was
£635m, which was £57m less than their nearest competitor. The company planned to
reduce staff numbers more quickly through voluntary redundancy, insource more work
and employ fewer managers (NAO, 2003). OutsourceCom is a subdivision of a huge
European engineering and electrical corporation that was deliberately created to exploit
new outsourcing markets.
This 10-year PPP contract has since been extended by a further five years, and
OutsourceCom will be paid over £1bn to deliver the service and provide new technology
in order to modernize operations. While 120 employees remain civil servants at National
Savings’ London headquarters in control of business policy, product design and pricing,
the other 4100 civil servants had their employment transferred over to OutsourceCom
under Transfer of Undertakings (Protection of Employment) regulations (NAO, 2003).
The PPP was deeply unpopular from the outset with the union and its members, who
saw it as a threat to employment rights and customer service. There was a long-running
campaign against the PPP, which culminated in the first strike action to be taken against
Blair’s first Labour government (see Smith, 2008).
In an attempt to placate the union and staff, OutsourceCom emphasized the opportuni-
ties they would create through insourcing new work and promotions via restructuring.
Indeed, there were some limited early successes for OutsourceCom, as in 2001–2 they
saved the tax payer £176m through cost reductions. The company also increased produc-
tivity, as 50 million transactions are still dealt with per year, but they are now processed
by less than 2000 staff, as opposed to the 4100 originally employed at the start of the
contract. OutsourceCom did have some success with insourcing work and began to mod-
ernize operations (NAO, 2003). However, the company soon ran into financial difficulties
as they did not reduce costs as quickly as planned and failed to court the third-party busi-
ness they had originally predicted.

‘Partnership’, profit and pressure

At the start of the contract, OutsourceCom employed numerous management consultants
and drafted in their own team of senior managers from a range of outside industries. Several
of the union officials and workers interviewed felt that this was a deliberate strategy, as
even though these new managers were more costly to employ, they could be used to cultur-
ally cleanse the old civil service traditions; this has resonance with Strangleman’s (2004)
research on the privatization of the railway industry.
A fundamental dilemma lies at the heart of the PPP concept, which is the differing
interests of the private and public sectors. Indeed, a senior union official claims that during
contract negotiations OutsourceCom tried to gain control of business policy, product design
and pricing – which the Treasury remain in charge of – as they thought that NS&I was a
Smith 101

typical commercial bank. Hence, through the acquisition of these controls, OutsourceCom
assumed that they would then be able to significantly increase business and their profit
margins. This highlights not only the priorities of the private ‘partner’, but also a key
misunderstanding of the public service ethos.
The National Audit Office 2003 report emphasizes that the contract is more challenging
than OutsourceCom originally anticipated. Indeed, the Labour government had stressed
that there are no easy PPP/PFI deals and that the risk is completely transferred over to the
private sector (HM Treasury, 2000: 11–12). The NAO report states that OutsourceCom
underestimated the scale and complexity of the overall task, together with the management
resources required. It is important to note that during the bidding stage, OutsourceCom
proposed to run the contract with fewer managers than their competitors. Moreover, their
external managers lacked the experience of running an organization like NS&I and rather
than employing a large number of expensive management consultants, OutsourceCom
should have made better use of existing staff and their tacit knowledge (NAO, 2003: 22);
a point which is reiterated in the worker interview quote below.

I really do think a lot of things were underestimated by OutsourceCom and a lot of money was
wasted on consultants. Without saying ‘I told you so!’, we had people who could have come up
with exactly the same answer who were already working here. I would say that the main reason
for OutsourceCom’s failures is just downright bad management. (Employee, DNS&I)

The company have invested heavily in the modernization of NS&I. However, the National
Audit report states that from as early as February 2001, only 22 months into the contract,
NS&I were aware of the spiralling costs incurred by OutsourceCom. Indeed, by May 2002,
due to employing more staff, insourcing less work and spending more money on site
maintenance, the report states that the cumulative effect ‘had a significant impact on the
company’s ability to make its projected return of 8.7 per cent, and it is more likely to make
a loss’ (NAO, 2003: 13). Furthermore, the report goes on to say that the only way that
OutsourceCom are likely to make any profit at all is through the option to extend the con-
tract to 15 years. This resulted in the appointment of a new OutsourceCom senior manage-
ment team who were ‘known deliverers of change’ (NAO, 2003: 3).
It is evident that OutsourceCom failed to do their homework thoroughly before tabling
their bid. Yet the pressure now falls on shop-floor staff to make this a profitable venture,
even though the majority were against the PPP from the outset. Workers interviewed did
notice a distinct shift in management styles, with the emphasis being very much on
profitability. One interviewee stated, ‘You’re made very much aware now that you are
answerable to shareholders and that the whole operation is money-driven, it is all about
“business needs”!’
Moreover, OutsourceCom presented road shows to staff entitled ‘Building Tomorrow
Today’ where senior managers explained that they were not meeting their original financial
targets and that, as a consequence, there would have to be pay freezes. Obviously the
union raised concerns, but this also has serious implications for the company in their quest
to gain the loyalty and trust of the workforce. Several workers interviewed spoke about
the demoralizing effect of these road shows, and the mounting pressure on productivity
and efficiency gains.
102 Work, employment and society 26(1)

Over the last few years we’ve had road shows, where senior managers have talked about why
the contract lost so much money and where they hope to be within the next year or two. But the
problem is that OutsourceCom haven’t inspired confidence in the fact that people already know
that they’re worked hard and there’s very much a feeling that we’re going to have to work even
harder, as OutsourceCom keep talking about wanting more efficiencies and savings. That is the
undermining effect that this has on staff morale, because a lot of people can’t give any more
than they do now. (Employee, DNS&I)

The increasing pressures placed upon shop-floor staff are directly attributable to the
information technology (IT) failures and the negative impact on profitability, which will
be explored in the following section.

Technological difficulties
The main driver behind the PPP was organizational modernization to offer a broader range
of services to attract a younger and more dynamic customer base. Several modern banking
methods were to be introduced, namely: telephone and internet banking, and the use of
Automatic Teller Machines.
Computerization started in the mid-1990s with the conversion of all manual records,
and all computer work was done in-house. The long-term plan was to move from the
‘Legacy’ mainframe computer system, where each product was on a separate customized
software package, to all products being on one IT platform. However, there were technical
problems and everything was put on hold during PPP negotiations. After winning the
contract, OutsourceCom decided to replace the ‘Legacy’ system with ‘Tahler’, a commer-
cially available banking IT platform. The plan was that this new ‘Tahler’ system would be
able to manage sales, repayments, accounting, customer management and central admin-
istration (NAO, 2003).
Yet, the introduction of this new ‘Tahler’ system was plagued with practical problems.
Some of the interviewees worked in the IT department and stated that the ‘Tahler’ system
was an off-the-shelf Belgian IT package, which had to be adapted to meet the organiza-
tion’s needs and there were linguistic difficulties.

Since the public-private partnership we’ve had a lot of IT consultants in. There were language
problems because all of their IT code was initially written either in French or Flemish. So
when our staff tried to take over the work, all the codes were written in a foreign language.
(Employee, DNS&I)

Under the contract, OutsourceCom had to migrate all of the currently available NS&I prod-
ucts onto ‘Tahler’ to a strict timetable. However, there were continual problems and the
National Audit report states that the company significantly underestimated this challenge
and that ‘tracing the precise cause of problems was slow and rectification of problems even
slower’ (NAO, 2003: 16). Many of the interviewees were well aware of these problems:

Well, products are migrating across onto ‘Tahler’, but OutsourceCom didn’t realize the scale of
the job, they thought all products were the same and you just moved them across onto a common
Smith 103

platform. But we’ve got Premium Bonds which isn’t an interest-based product, it’s a prize draw
product; there’s a whole range of different products. I don’t think the company really did their
research to understand National Savings. (Employee, DNS&I)

Due to OutsourceCom failing to meet these IT targets and falling behind schedule,
there was even more pressure placed upon consultants to migrate products onto ‘Tahler’.
This led to OutsourceCom implementing IT system fixes without thorough testing (NAO,
2003: 16), which only compounded existing problems. As a union official explains, ‘If
the government had done this, they’d have tested it, ironed out the blips and the people
issues, and then launched. OutsourceCom launched and then tried to iron out, because
they want everything done yesterday.’
OutsourceCom have since been able to successfully transfer products onto the ‘Tahler’
system. However, OutsourceCom failed to achieve full business transformation by December
2000, which was a clear breach of obligation (NAO, 2003). The company incurred a sub-
stantial fine and these errors have led to escalating costs; all of which contributed to the
change of management teams and rising pressure on all employees. Grimshaw et al. (2002)
also uncovered issues of poor performance on IT ‘partnership’ contracts, yet in their study
the public sector bore the brunt of rising IT costs.
This evidence questions the supposed expertise of the private sector, and Whitfield
(2001) states that there have been a number of IT failures on such ‘partnership’ contracts.
The following section examines how these events increased pressure on workers with a
questioning of public service quality procedures.

Key performance indicators and customer service

Key performance indicators (KPIs) have been used in the civil service from the early
1980s onwards in an attempt to measure organizational performance. However, most of
the workers interviewed only became aware of the existence of KPIs after the public-
private partnership. These indicators are set by the Treasury and NS&I, detailing the
standards that must be achieved on the contract. All PPP/ PFI deals are tied to rigorous
performance targets (HM Treasury, 2000).
Carter et al. (1992) identify three types of KPIs. The first are prescriptive, setting out
organizational objectives and targets. Secondly, there are descriptive KPIs, which are used
to record change. Finally, there are proscriptive KPIs, which are negative indicators to
penalize mistakes that should not happen in well run organizations (1992: 49–50). The
KPIs at National Savings are proscriptive as they are penalty-based, in that OutsourceCom
are fined if they fail to hit targets, but they are not rewarded if they meet or exceed them.
In the first three years of the contract, OutsourceCom achieved 98 per cent of the KPI
targets set, but were fined a total of £2.1m. The main reason was that the company failed
to complete the IT business transformation as stipulated in the contract by December 2000
(NAO, 2003); yet there is a snowball effect as KPI targets continue to mount up.
All staff were very aware of the negative fine-inducing element of KPIs, and one worker
spoke of this ‘ridiculous pressure’. In similar studies on PPP/ PFI contracts, both Grimshaw
et al. (2002) and Hebson et al. (2003) also found that penalty-based KPIs impose intense
pressure on workers.
104 Work, employment and society 26(1)

There have been some successes for OutsourceCom regarding KPIs, as the target time
for responding to customer requests has been reduced (NAO, 2003). However, Pollitt
(1990) argues that KPIs are primarily concerned with meeting set criteria and cutting
costs, rather than actually improving customer service. Some of the staff interviewed
reiterated these sentiments, as existing quality measures were being questioned by
OutsourceCom on the grounds of costs and ultimately profits.

OutsourceCom want to make a profit out of the contract and NS&I want to keep the same levels
of customer service that they’ve always enjoyed. I think the difficulty that we see as employees
is that in the past we’ve moved from a civil service customer-focused background to an employer
who says, ‘Do we really need to do that for the customer? Other banks don’t do that and it costs
us money.’ For instance, sending out statements whenever a customer requests one, other banks
would say, ‘Well, no, you’ll get your statement every quarter, or you’ll have to pay for it.’ So,
it’s those sorts of issues where it is an additional cost for OutsourceCom to provide that service.
(Employee, DNS&I)

National Savings is renowned for its excellent customer service and one of the union’s
arguments against the PPP was that there would be tensions over quality and the quest for
profitability. Some workers interviewed felt that the company were more concerned about
avoiding KPI fines than maintaining the organization’s excellent quality track record. As
workers were determined not to let customer service suffer, they carried out additional
work voluntarily and altruistically; therefore, NS&I were unaware of any friction over the
quality agenda of OutsourceCom.

Redundancies and the creation of a multi-tier workforce

There were several voluntary redundancy exercises before the public-private partnership
due to computerization and departmental spending restrictions. After the PPP, there were
a series of extensive voluntary redundancies, which saw the headcount reduced from 4100
to 2000 staff (NAO, 2003), together with the creation of a multi-tier workforce.
There was no shortage of ‘volunteers’ for redundancy after the PPP, and the main reasons
were the good severance packages and the uncertainties of working in the private sector
(see Smith, 2009). Indeed, other researchers have also uncovered mass redundancies both
before and after privatization, for example, in the water industry (O’Connell Davidson,
1993), at British Rail (Strangleman, 2004) and British Gas (Ellis and Taylor, 2006).
A new development since the PPP is that workers have been made redundant by
OutsourceCom, a private company. Ironically, some have since gained new employment
in other civil service departments and been able to keep their redundancy payments. This
is one of the hidden costs of privatization, as prior to this staff would have simply trans-
ferred over to another civil service department with no cost to the taxpayer.

Some workers who have taken redundancy payments from National Savings have actually gone
back into civil service jobs, which is very inefficient for the government. So, the taxpayer is
paying for these redundancies and they’re then going back to work for the taxpayer again! (PCS
union official, National Savings Group)
Smith 105

Turnbull and Wass (2000) argue that redundancy programmes can increase job inse-
curity with the problem of ‘survivor syndrome’, where those who remain are placed under
increasing workplace pressures. Moreover, as large numbers of staff left via redundancy,
union representatives and workers interviewed felt that staffing levels were unnecessarily
stretched, with a deliberate reliance on agency workers to reduce costs. While this is new
to NS&I, the use of agency workers is increasingly common in the public sector and a
deliberate managerial strategy that adversely affects disadvantaged groups (Conley, 2002).
At NS&I this has resulted in the creation of a multi-tier workforce, made up of ‘core’
ex-civil servants and ‘peripheral’ managers, specialists and agency workers. Indeed, Ruane
(2007) uncovered the development of two-tier workforces in PFI hospitals.
OutsourceCom have recruited their own managers and specialists who are all on indi-
vidual contracts and higher rates of pay than ‘core’ staff. However, they are under pressure
to deliver and in precarious positions of employment, as can be seen with the change of
senior management teams.
At the other end of the scale there are around 400 temporary workers employed by a
private sector employment agency, who are on inferior terms and conditions. However,
these agency workers were to lose their jobs when OutsourceCom were allowed to offshore
work to India.

The insourcing, outsourcing and offshoring of work

One of the purported advantages of this PPP was that the private ‘partner’ would insource
new work utilizing existing staff and resources. This was seen as a realistic alternative to
redundancy, as neither NS&I, OutsourceCom management nor the union wanted the organi-
zation to go down the same road as the UK financial services industry, where 75, 000 jobs
were lost between 1990 and 1992 due to modernization (Leyshon and Thrift, 1997: chapter
6). However, tensions soon arose regarding the quality of such new work and employment
relations issues, as a more complicated picture of insourcing and outsourcing emerged.
OutsourceCom attempted to win staff over by emphasizing the new opportunities they
would create by insourcing work. However, by 2003 they had only managed to create 650
of the 1200 jobs they had originally predicted (NAO, 2003: 2–3). A number of interviewees
mentioned the demoralizing effect this had on staff.
OutsourceCom’s biggest third-party business contract is with Barclays Bank, involving
the redeployment of 550 staff. The company have insourced work from the Passport Agency,
the Vehicle Operations Services Agency, and the Immigration and Nationality Directorate,
involving the transfer of 70 workers in total (NAO, 2003: 9). OutsourceCom also have a
contract with an accountancy subsidiary, involving 50 workers. However, they lost the
re-bid on the Coventry City Council contract, which only involved three workers. More
recently, the company acquired a technical support contract for the BBC involving 60 staff.
In Public-Private Partnerships: The Government’s Approach published by HM Treasury
(2000), NS&I is cited as a fine example of where a private ‘partner’ has been able to create
third-party business. However, none of the examples are detailed, nor are any of the dif-
ficulties and complications associated with this insourcing of work. Of the new third-party
business that OutsourceCom have created, all of it is back office work. Hence, this market
is a race to the bottom where other organizations are farming out what they define as
106 Work, employment and society 26(1)

peripheral activities with the aim of cutting costs; hence, the recent mass outsourcings of
work to the Far East (Taylor and Bain, 2005).
Due to financial pressures on the PPP contract, OutsourceCom have established separate
bargaining units on the Barclays and accountancy subsidiary contracts, with the aim of
changing terms and conditions and reducing the wage bill. The company have transferred
staff over to the Passport Agency and Immigration Department contracts against their
will, and even forcibly promoted and moved workers over to the Barclays Bank contract.
The union were under the impression that OutsourceCom gave a commitment that staff
would transfer over to new insourced work on their existing terms and conditions. Hence,
this fragmentation not only creates an increasingly complex multi-tier workforce, but
makes it more difficult to establish effective union bargaining (MacKenzie, 2000).
In a further attempt to reduce costs, in 2001 OutsourceCom planned to outsource what
they now deemed to be two ‘peripheral’ areas of NS&I to other private sector contractors.
The first was to transfer another 15 jobs to the accountancy subsidiary, and the second
involved 400 jobs in the Document Management Unit. In both instances the union and staff
concerned were opposed to these outsourcings, as OutsourceCom are not supposed to
fragment the NS&I contract. While the outsourcing of the 15 accountancy jobs went ahead,
there was threatened industrial action over the transfer of the Document Management Unit
(see Smith, 2008). There is a danger in defining what is ‘core’ and ‘periphery’ work, and
the outsourcing of key areas can lead to the hollowing out of the organization. Indeed, this
was the main argument made by the PCS union, as they argued it was core business and
if this area was outsourced then it would severely limit OutsourceCom’s capacity to bid
for more third-party business. Yet the in-house bid was successful, so the work remains
part of the NS&I account.
This insourcing and outsourcing of work is redefining the boundaries of the civil service.
The majority of this insourced contract work is for civil service departments, therefore
ex-civil servants at NS&I are now completing outsourced civil service work. Furthermore,
as much of this is short-term contract work, there are questions over the sustainability of
such employment. There are also problems in managing such a complex web of contractual
relationships (MacKenzie, 2000; Rubery et al., 2005). Indeed, this insourcing and out-
sourcing of civil service work may not improve efficiency, as it was arguably more effective
to have departments completing their own specific tasks.
In 2004, OutsourceCom were granted government approval to offshore 250 National
Savings jobs to India, a development which is directly linked to the PPP contract being
extended to 2014. This is significant as it was the first ever offshoring of UK Government
work in Britain. Moreover, in 2006 OutsourceCom received ministerial approval to further
fragment the account with a second offshoring involving another 240 jobs. The company
claimed that these offshorings were necessary for organizational growth and would reduce
costs to the taxpayer. The PCS union argued that the aim of offshoring was to enable
OutsourceCom to make a profit on the contract. While these low-skill jobs were being
offshored, OutsourceCom were laying off 400 agency workers, so that core ex-civil serv-
ants could be redeployed to NS&I work or third-party business. Such developments reflect
recent offshoring trends, with the exportation of back office work, as opposed to call centre
operations, which are driven by the capitalist imperatives of profit maximization and cost
reduction (Taylor and Bain, 2005).
Smith 107

Although the offshoring went ahead, the union were able to negotiate a no compulsory
redundancy guarantee and secure trade union recognition in India. However, this fragmen-
tation of public sector work sets a dangerous precedent and is a threat to the public service
ethos of equity and accountability.

Conclusions
NS&I has been at the cutting edge of public sector modernization and has undergone a
process of change, but the PPP proved to be the most significant development as it directly
affected the entire operational staff. There is a general political consensus over privatization
and proponents claim that in ‘partnership’ the expertise, finance and innovation of the
private sector offers new opportunities. However, advocates fundamentally fail to account
for the differing aims, goals and values of the public and private sectors (Smith, 2008);
and key are the profit maximization and cost reduction dynamic of the private ‘partner’.
This research into the PPP of National Savings contributes to growing theoretical and
empirical work which challenges and questions the alleged advantages of ‘partnership’
forms of privatization. The management and technical expertise of OutsourceCom must
be questioned, as they had no experience in this particular industry (NAO, 2003: 22);
indeed, Strangleman (2004) makes the same point regarding Railtrack and the disastrous
privatization of the railway industry. Furthermore, the performance of OutsourceCom
has also been lacking, and the quest to make a profit has exacerbated problems, with
quick fixes often being implemented. Both Hebson et al. (2003) and Whitfield (2010)
have major concerns over the supposed superior performance of the private sector in
such ‘partnerships’. There have been mass redundancies at NS&I, in keeping with other
privatizations (Ellis and Taylor, 2006; O’Connell Davidson, 1993; Strangleman, 2004);
yet at NS&I some staff have returned to civil service employment and retained their
redundancy payments, which is highly inefficient for the taxpayer. OutsourceCom have
also created a multi-tier workforce which did not previously exist at NS&I, consisting
of highly paid specialist grades and low-paid agency workers, but all are in precarious
positions of employment. One of the central claims for PPP is that the private ‘partner’
would insource new work and opportunities. However, Whitfield (2010) argues that there
is little evidence of job creation through PPP contracts. OutsourceCom have only attracted
around half of the third-party business they predicted, and have attempted to impose
different terms and conditions of employment. The majority of this insourced work is
for government departments, which is redefining the boundaries of the civil service.
OutsourceCom have also been granted government approval to offshore NS&I work to
India, in an attempt to make a profit on this ‘partnership’ deal. The consequential frag-
mentation of the NS&I account raises ethical concerns over the exportation of civil
service work. New avenues of research, particularly in light of the election of the
Conservative/ Liberal Democrat coalition government and the impending ‘deep cuts’ to
the public sector and civil service, include increasing private sector involvement and the
further fragmentation of services. Trade union strategies to oppose such measures, includ-
ing the defence of jobs, redundancy payments and final salary pension schemes, are also
worthy of empirical investigation; as are developments regarding this particular NS&I
PPP with the contract due to expire in 2014.
108 Work, employment and society 26(1)

Grimshaw et al. (2002, 2005) argue that PPP and PFI contracts further fragment and
blur the boundaries of the public and private sectors, raising new dilemmas and complexi-
ties. Evidence from this case study suggests that this argument is correct, but that there are
fundamental and irreconcilable differences between the public and private sectors; hence,
PPP is a fundamentally flawed model (Pollock, 2004; Whitfield, 2010). Contrary to the
claims that PPP offers fresh opportunities and is not a threat to employment, in this case
there have been major transformations with the creation of a multi-tier workforce and the
fragmentation of the contract due to OutsourceCom’s quest for profitability. In recent issues
of this journal, Fevre (2007) has argued that claims of the ‘nightmare’ of job insecurity in
the UK are exaggerated, while Conley (2008) convincingly counters such arguments by
stating that quantitative analysis fails to adequately capture the reality of working lives.
Certainly, those interviewed felt that working at NS&I was no longer a safe and secure
‘job for life’ and that due to the initiatives implemented by the private ‘partner’, Monday
will never be the same again.

Acknowledgements
I would like to thank the union representatives and workers at NS&I for sharing their working experi-
ences. I am also grateful to Ian Roberts, Vaughan Ellis and Jim Barry for their helpful comments on
earlier drafts of this article, together with Chris Warhurst and the three anonymous referees.

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Andrew Smith is a Lecturer in Human Resource Management and Employment Relations

at Bradford University School of Management. His PhD research investigated the largest
public-private partnership in the civil service. He was previously a Research Assistant on
an ESRC-funded project which critically examined the concept of ‘care’ in employing
organizations. Andrew is part of a team of academics who are currently researching the
application of lean production methods in the civil service. He is a member of the Critical
Labour Studies network.

Date submitted October 2009

Date accepted August 2010