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Britain to tackle doubts about outsourcing risks with new guidelines

By Elisabeth O'Leary

EDINBURGH (Reuters) - Britain's government will take measures to identify and reduce risks taken by private firms that provide public services, it will say on Wednesday, in a bid to encourage companies that have become increasingly wary of taking on new government business.

Britain, which hires private firms to run parts of its health service, schools, prisons and public transport, has been rethinking how it awards contracts after the collapse of contractor Carillion just over a year ago.

"A more considered approach to risk allocation will make us a smarter, more attractive client to do business with," cabinet office minister Oliver Dowden will tell business leaders at the Confederation of British Industry on Wednesday.

Guidelines, set out in the "Outsourcing Playbook", will specify that "when designing contracts, departments must seek to mitigate, reduce and then allocate risks to the party best able to manage it", Dowden will say, according to a text of his remarks released before delivery.

The aim is to improve how government works with industry and deliver better public services by, for example, piloting services needed in advance and publishing details of work departments will require, so companies are better able to plan.

Public departments will also be required to say when it is best to deliver public services in-house or when there is benefit from drawing on private sector expertise.

Carillion became the largest construction bankruptcy in British history last year, leaving creditors and pensioners facing steep losses and putting thousands of jobs at risk.

Its demise reduced the number of big corporate bidders for government contracts and increased scrutiny of how the sector is run, driving down share prices of firms that provide outsourcing services, such as Babcock (BAB.L), Capita (CPI.L), Serco (SRP.L), G4S (GFS.L), Mitie (MTO.L) and Compass (CPG.L).

Those firms have also been under pressure because of slower public decision-making as the government grapples to deliver Britain's exit from the European Union due by March 29.

Babcock Chief Executive Archie Bethel told Reuters this month that some pressure on his firm's share price was due to uncertainty about what would happen if opposition leader Jeremy Corbyn, a known critic of the outsourcing, became prime minister.

(The story corrects title of Bethel in final paragraph to Chief Executive from Chairman)


(Reporting by Elisabeth O'Leary; Editing by Edmund Blair)