Outsourced services from dynamic, dedicated private sector providers still set the industry benchmark, argues Leading Services’ Sheila Bryant

On the face of it, cost sharing groups (CSGs) that provide shared services exempt of VAT look a good thing.

Dig beneath the surface a little, however, and the question of whether real value is being offered arises. In order to qualify for VAT exemption, a CSG has to be non-profit making by providing services at cost to the organisations within the group – all of which jointly own the CSG.

The types of organisation most likely to be attracted to the idea of CSGs are charities, non-government organisations (NGOs) and public sector bodies. It follows then, that members are unlikely to benefit from the level of commercialism and competition that exists across the private sector. If the CSG is owned on an equal basis by all its members, there would be no clear leader in the group and probably, no real incentive to drive change and seek ongoing service improvements.

And, as we’ve seen before, the merging of back office services in the public sector is invariably bedevilled by bureaucracy and characterised by a wholly different culture to that in commercial organisations. It is very difficult to change this and create the environment in which the imperative to drive quality up exists hand-in-hand with the need to keep costs down.

The private sector, on the other hand, has a great deal of experience in demanding market conditions where efficiencies have been achieved through outsourcing, co-sourcing, process change and policy enhancement. Nowhere are these skills more finely honed than at specialist private sector consultancies. That’s why I believe that, by introducing a private sector driver, a client will enjoy more efficiencies than are currently available within the public or third sectors.

However, if the private sector created its own consortium along the lines of the VAT exempt CSGs, Its clients would not benefit from the VAT exemption applicable to CSGs. This means that members would be paying 20% over cost, yet would have no mechanism for claiming that money back.

This in turn restricts opportunity for those private sector oursourcing providers who owe their very existence to their skills, knowledge, experience and expertise in services that make a huge contribution to the success of many businesses and charities. Quite simply those who are arguably best placed to drive most value for money are disadvantaged to the tune of 20% when compared to CSGs.

Dynamic outsourcing consultancies such as Leading Services can facilitate the setting up of amalgams by bringing together customers that would be eligible to benefit from the VAT exemption. However, under the current proposals, they would be actively discouraged from doing this. In this scenario, their best bet would be to join a CSG, where they become subordinate to the consortium members and lose their ability to drive and shape a successful and efficient operation.

For this reason many organisations without the resources of large commercial businesses – such as those in the third sector – find themselves with a dilemma: go down the CSG route or outsource to private organisations?

To win these clients over and show that their needs are fully understood, private sector providers need to demonstrate their commitment to a wide range of ethical and practical principles. High among these are sustainability and transparency: third sector clients demand that providers share their environmental values and that they are open and operate with the utmost integrity. Similarly, the provider should show clarity in everything it does and work within clear management consultancy codes and guidelines. Governance structures should be sufficiently robust to assure the client of its adherence to corporate responsibilities. Clients are also increasingly looking for assurance that outsource providers understand - and can adapt to - their unique organisational culture and that they have the client portfolio and range of services that engender complete confidence.

Sheila Bryant is an experienced Chartered Accountant and CEO of Leading Services where she provides strategic professional and outsourced finance director services to the company’s clients.

www.leadingservices.co.uk