Using Company Law To Make A Fairer, More Sustainable, Society – Book Review

A new book, ‘Rethinking Governance in Public Service Outsourcing’, offers fresh insights into the concept of co-opting the fundamental obligations that non-state providers of public, state services have to society.

In October 2024, new legislation (the Procurement Regulations 2024) will come into effect in the UK  which aims to change the way public money is spent on buying services or products from private companies.

The book’s author, Nina Boeger, Professor of Law, The City Law School, City St George’s, University of London, suggests that the law could provide more flexibility to national or local government when awarding contracts, and argues that this is a golden opportunity to innovate. She says: “What’s more, is that this is a win-win situation. Giving contracts to companies or organisations doesn’t just solve problems in public services outsourcing. It also helps to create a more sustainable economy. Public contracting is a really powerful tool for steering behaviour, that doesn’t involve more tax or more regulation.”

Boeger argues that there are many issues with the ‘outsourcing’ or ‘public procurement’ that has been increasingly used across the UK’s public sector for decades.

One problem she cites is that companies providing services can exploit gaps in contracts: a prison service provider might provide fewer guards, or less time off for each guard. Another is where one company effectively takes over whole areas – SERCO, GS4, or Carillon, for example – with the state depending on them so much that there’s no real market of providers, incurring big problems if they fail.

She argues that the NHS, and the care home and construction sectors have all experienced these issues too, and that fundamentally, private companies are required to take the steps that incur these issues, because their obligation is to their shareholders, and to maximise profit, rather than a public obligation to society as a whole.

Professor Boeger shares that, so far, steps to resolve these problems have included:

• trying to draft watertight contracts
• using the procurement process to hold providers to account
• imposing tougher regulations
• and insourcing (where some things go back into public ownership, such as the national probation service, and some local councils taking refuse collection back in-house).

However, she suggests that none of these steps are foolproof, and all have downsides.

She argues that if public contracts went to providers whose structures and obligations were more aligned with public obligations to society as a whole, the downsides of outsourcing would reduce significantly, and that to some extent this is happening already in:

• small and medium sized enterprises (SMEs), which tend to be embedded in local communities, can be a better bet than large conglomerates
• the voluntary community and social enterprises (VCSEs) can be even better but these are largely absent from mainstream public procurement provision especially in larger procurements and at national government level.

Professor Boeger also suggests how the benefits from these insights could be scaled up, using many more imaginative forms of company law.

She recommends that when choosing a service provider, local or national government could look at three factors:

• what is the purpose of the organisation: profit-maximising for shareholders, or delivery of local services?
• who has the power in the organisation: shareholders, members, employees as partners, employees represented on the board?
• where does the profit go: to shareholders or to a foundation which supports other aims than profit-maximisation to shareholders?

There being a world of different models in company law, beyond the narrow extractive approach of shareholder profit maximisation.

‘Rethinking Governance in Public Service Outsourcing, Private Delivery in Sustainable Ownership’ is published byBristol University Press.