CentreForum’s Quentin Maxwell-Jackson was previously a Partner at KPMG, where he led the Public Services Consulting, Central Government Advisory and Consumer and Industrial Markets practices. He provided advice to clients on major change and transformation programmes across a range of central government departments, the wider public sector and the private sector.
Managing a research lab in the public sector can seem a bit like trying to run the London Marathon in an antique diving suit – something you would surely only do for charity. So why do government labs have to operate with so many unnecessary constraints?
In a recent report for the think tank CentreForum (Getting Better Value from Public Sector Research Establishments) we looked at seven current public labs and the ten that were contractorised or privatised. The main differences in performance between them were financial and organisational, rather than scientific. We also found that privatised labs were particularly effective in employing technology transfer at the heart of their business models to drive profitable growth and increase employment.
Most of the contractorised and privatised organisations grew strongly and profitably with greater private sector involvement. A key factor in their success was the removal of a raft of operating constraints, which still hamper the performance of government-operated labs. These included slow decision-making, high overheads, a risk-averse culture not focused on customers, and a lack of access to capital.
A few case studies illustrate the differences: The National Physical Laboratory (NPL) was contractorised in 1995 and is operated by Serco, which has taken on significant operating risks such as restructuring and pension costs. Since contractorisation, overheads have been halved, third party revenues have grown by 16% per annum, and the number of peer-reviewed research papers published have doubled.
LGC, formerly the Laboratory of the Government Chemist, was privatised in 1996. After an initial period of consolidation, process and culture change to remove public sector constraints, LGC saw its revenues and profitability increase by over 800%, with staff numbers rising from 270 to more than 1,400.
Contrast these examples with the Forensic Science Service (FSS), which has remained a government lab. FSS has had a significant impact on the investigation of crime, including the development of forensic DNA analysis. But it will be closed down later this year because it couldn’t operate under the burden of government constraints.
As long ago as 2003, FSS management told the Home Office’s McFarland Review that it felt constrained by having to operate in the public sector. McFarland recommended privatisation. The Home Office agreed, but unfortunately the privatisation process was never completed. This had disastrous consequences. Decision-making was slow, there were reviews, and scrutiny followed scrutiny. The overhead structure of FSS became unviable as the market changed, with too many people and high employment costs. The amount of restructuring and cultural change required to deliver necessary efficiencies was underestimated, while market forecasts for forensic services were overly optimistic. After making significant losses, the decision has been made to close FSS, and the plan is that its workload will be absorbed by the existing market of providers, including LGC.
The UK spent £1.3 billion last year on ten publicly owned and operated labs, employing 14,000 people. There could be significant opportunities for better value from greater private sector involvement. We are not saying, “Contractorise or privatise in all cases.” Some labs may need to continue to be owned and perhaps operated by government. But the automatic presumption that public ownership and operation are best needs to change. Nor are we saying that the government should fund less research: on the contrary, we point to examples, such as in civil nuclear energy, where there seem to be significant gaps.
Given the squeeze on public spending, and the desire to promote technology transfer and innovation to encourage economic growth – now is definitely the moment to reopen the question of whether more government-funded labs could operate more effectively with greater private sector involvement. And imagine how much better it would feel, for the numerous scientists still working in government labs, to run their scientific marathons without the unnecessary burden of public sector operating constraints.
A longer version of this article first appeared in Chemistry World Vol 9 No 2 February 2012.
