Insourcing vs Outsourcing: What Public Sector Delivery Model Assessments Should Actually Compare

Purpose: An evidence-based comparison of the factors a DMA should examine when considering internal delivery, market delivery and mixed models.

An evidence-based comparison of the factors a DMA should examine when considering internal delivery, market delivery and mixed models. This matters because public procurement decisions are rarely isolated events. A choice made during planning can affect competition, affordability, service quality, supplier behaviour and the ability to manage the contract later. The strongest approach is therefore to use the source guidance as part of an end-to-end commercial process, with clear ownership and evidence rather than as a document that is completed after the key decisions have already been taken.

Quick summary

• The guidance notes that outsourcing can provide access to scale, specialist expertise, innovation and management focus where the market can deliver those benefits.
• It also notes that effective in-house delivery can provide control, flexibility, internal synergies and alignment with core purpose.
• The DMA should consider more than a binary make-or-buy choice, including wider public sector, third-sector, joint-venture and mixed options.
• Relevant considerations include people and assets, transition and mobilisation, service delivery, risk and impact.
• Whole-life cost should be compared on a consistent scope.

What the guidance means in practice

The source material gives several anchors for that process. The guidance notes that outsourcing can provide access to scale, specialist expertise, innovation and management focus where the market can deliver those benefits. It also notes that effective in-house delivery can provide control, flexibility, internal synergies and alignment with core purpose. The DMA should consider more than a binary make-or-buy choice, including wider public sector, third-sector, joint-venture and mixed options. These are not interchangeable statements: some describe statutory or policy requirements and others describe recommended commercial practice. Teams should identify which category each requirement falls into, apply it to the organisation and procurement in scope, and keep a record of the judgement. Where guidance from 2021 or 2023 predates the Procurement Act 2023, its commercial principles can remain useful, but current legislation, regulations and current statutory guidance take precedence on legal process.

The practical value becomes clearer when the remaining guidance is read alongside the project lifecycle. Relevant considerations include people and assets, transition and mobilisation, service delivery, risk and impact. Whole-life cost should be compared on a consistent scope. For insourcing, the guidance highlights capability, TUPE and pensions, organisational overhead, returned risk exposure, market impact, interdependencies, service information and intellectual property. In day-to-day terms, this means the buyer should be able to answer three questions at any approval point: what outcome are we trying to achieve, what evidence supports the proposed commercial approach, and what will need to be managed after the decision is made? If those answers are weak, more analysis is normally more useful than adding another layer of narrative to an approval paper.

A practical process to follow

A proportionate process can be built into existing governance. The steps below are deliberately practical. They are not a substitute for the detailed source guidance, legal advice or local standing orders, but they provide a useful structure for a procurement or commercial team.

1. Step 1. Define the required outcomes and which service components can sensibly be separated. Record any assumption that could change the conclusion and when it will be reviewed.
2. Step 2. Assess existing and buildable internal capability, including support functions. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
3. Step 3. Assess supplier-market capability, capacity, competition and incentives. Capture the source evidence and name the person accountable for the next decision.
4. Step 4. Compare workforce, asset, system, data and transition requirements for each option. Record any assumption that could change the conclusion and when it will be reviewed.
5. Step 5. Evaluate which party can control or mitigate each material risk. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
6. Step 6. Compare whole-life cost and non-cost outcomes on a consistent basis. Capture the source evidence and name the person accountable for the next decision.

What good looks like

Good practice is visible in the decision trail, not only in the final document. A reviewer should be able to follow the line from the service need, through market and cost evidence, to the route, evaluation, contract terms and management arrangements. Where several functions contribute, the file should show who owns each decision and where challenge occurred. The same principle applies to handover: useful assumptions, models, KPI definitions, risks, supplier information and approval conditions should move into mobilisation and contract management instead of being left in the sourcing archive. This continuity is particularly important for long-running public services, where staff can change but the organisation remains accountable for the outcome.

Recommendations for procurement teams

The following recommendations are suitable for teams that want to embed the topic into normal ways of working rather than create a parallel compliance process:

• Use the same service performance expectations for all options.
• Distinguish capability that exists today from capability that could credibly be built.
• Test mixed models where different components have different characteristics.
• Include realistic mobilisation and service-continuity assumptions.
• Document the conditions that would cause the recommendation to be revisited.
• Consider wider market effects if a large public buyer exits or reshapes a market.

Common pitfalls to avoid

The most common problems are usually process failures rather than a lack of templates. Watch particularly for the following:

• Assuming outsourced delivery is more efficient by default.
• Assuming insourcing creates control without counting the capability required.
• Ignoring transition cost and continuity.
• Using supplier claims or internal optimism without supporting evidence.

Easy-to-read takeaway

For insourcing vs outsourcing: what public sector delivery model assessments should actually compare, the core discipline is to start early, connect the analysis to a real decision and preserve enough evidence for the next stage of the lifecycle. The source material should help teams make better decisions, not merely produce more paperwork. Before acting on a live procurement, confirm the current version of the Procurement Act 2023, regulations, Procurement Policy Notes and any organisation-specific approvals or delegations. This is especially important for thresholds, notice duties, exemptions and policy requirements that can change over time.

Source basis

Primary source used: Delivery Model Assessments Guidance Note, May 2021. Related articles in this collection also draw on the other supplied Cabinet Office, HM Treasury and Procurement Act materials where the topics overlap.

This article is general procurement support content. It should be read alongside current legislation, statutory guidance and your organisation’s own governance and legal advice.