Public sector IT contractors: Focus on value not cost as IR35 hits

At the end of March, the government is facing a brain-drain as contractors leave the public sector rather than be caught out by stricter tax rules. But Eduserv’s Max Elliott-Massouras says the focus should be on the value of contractors – not their cost.

Focus on value, not cost when it comes to IT contractors – Photo credit: PA

Public sector IT contractors are soon to feel the squeeze as the government looks to bring in some £440m in unpaid taxes by reforming the tax legislation known as IR35.

The taxman’s view is that the overwhelming majority of the 18,000 public sector IT contractors are more like employees than consultants. As such, they should pay their taxes accordingly.

The government’s suggestion that only 10% can truly be considered consultants isn’t too wide of the mark.

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But focusing on the revenue lost to the public purse is only part of the debate we should be having about public sector IT contractors.

The more significant problem to address is the value that contractors bring to the public sector, given the enormous amount we spend paying them: a figure that we estimate to be approaching £8bn per year based on the government’s figures.

Let’s be clear: this isn’t about the skills or capabilities of the contractors themselves. Nor is this about the need for the public sector to bring in additional skills and resources where it is demanded by a specific programme or IT deployment.

The problem lies in the way organisations think about these resources and then how they are deployed and managed.

Why not pay by results?

As an external consultant myself – and someone who manages teams of consultants – we are very clear about how to offer our clients added value.

We clarify the project that needs to be delivered, what we need to do, the expected outcomes and the time by which it needs to be delivered.

We’d hope to be hired to do new projects where we are needed, but would find it strange to be embedded on a rolling basis within a client organisation.

It would be even stranger not to be subject to regular performance reviews and for our value not to be in question if we didn’t or couldn’t deliver what we were hired to achieve.

But this is often not the way the public sector uses contractors: it is not unusual to find teams working effectively as a permanent in-house resource on business-as-usual programmes. 

The distinct difference between these individuals and their permanent colleagues is the lack of performance management and the money they make each month.

Therein lies the big opportunity: to reset the way we engage and manage this powerful resource so they deliver more.

What’s needed is robust performance management, with outputs and contracts aligned to strategic goals so these teams are delivering the best return on investment.

Each engagement needs to be treated like a piece of consultancy, with a clear start, middle and end, as well as contractual outcomes.

If ever there was a good moment to think about this it is now: focussing on outcomes and deadlines rather than day rates and tax arrangements is something which would benefit us all. 

The Digital Outcomes and Specialists procurement framework on the Digital Marketplace should allow for this to happen. But the challenge is not just finding specialists but identifying and the paying for the outcomes. This requires a focus on finding partners who can deliver on their plans and then move on when the work is done.


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