Public Sector Debt Collection: to Outsource or Not?

Given the current crisis caused by the COVID-19 pandemic and the inevitable knock strain on public finances, it is more important now than ever to ensure the timely and effective recovery of monies owed to State bodies. The 2011 Public Service Reform Plan identified shared debt collection for governments agencies as a shared service opportunity. The publication of a Debt Management Review in 2014 continued this trend. While it found a Central Collection Agency would be the best option, it stated that there was a role for outsourcing certain aspects of the work and that for short term projects, outsourcing would deliver the benefits sooner and more assuredly.

In 2017, the Department of Public Expenditure and Law Reform published a Best Practice Guide for the Collection of Debt by Public Service Bodies. The goal of the Guide is to assist public service bodies in improving the efficiency and effectiveness of their collection of monies and sets down principles and guidelines which can be tailored to the specific needs of each public body. As well as setting out the basis for consistent and good collection practice, it also contemplates, in appropriate cases, outsourcing the collection of debt.

This is because external professional providers will already have the systems and expertise in place to reduce costs and investment for the public sector body. When it comes to debt management and recovery, a one size fits all approach does not necessarily fit. Therefore, expertise and understanding of the current debt collection landscape is crucial. External service providers can offer insight into debt culture to public sector bodies. This provides specialised expertise and legal know how, including, for example, how to deal with debtors applying for arrangements under the Personal Insolvency Act 2012, experience and proficiency.

For the public sector, building up practical experience takes time and investment in people. It can be easily lost through the movement of vital personnel. Individual public sector bodies may also simply not have sufficient debt to justify the scale of investment that might be required. Dedicated debt management systems are essential to effective debt management. These are rarely already in place in public sector bodies. Additionally, collective outsourcing would enable different public sector bodies with similar debt, like universities, local governments, and hospitals to access the same provider or panel of providers and use their collective bargaining power to achieve a very cost-effective solution.

Concern is frequently expressed as to the sensitivity required when collecting certain types of public debt. Hospital, or even Revenue debt, for example, all have their own peculiarities and require alertness to overall circumstances on the part of the collecting professional. This is to avoid bringing any disrepute to the public sector body. However, many of these concerns can be addressed at the tender and contracting stage with built in guidance as each stage of collection is reached. Additionally, as a relationship is built up with the external collecting professional and the public sector body, so is familiarity of the specific debtors being targeted.

Outsourcing at least some of a public sector body’s debt is also a very useful comparison exercise in benchmarking its own, or another similar public body’s, practices with an external service provider. Lessons learnt can be used to improve its internal debt management resources and expertise over time.

As an example, the Revenue Commissioners have outsourced the legal enforcement of their debt collection very successfully for some considerable time. The Government’s Value for Money and Policy Review Initiative, from 2009 to 2011, concluded that “…the Revenue’s spend upon external solicitor firms to enforce recovery of tax debts through the courts represents value for money...”

Looking back over tenders made through the Office of Public Procurement, we can also see the above recommendations gradually being put into practice most recently with a broad tender to provide Legal Services to the Public Sector.

Conclusion

Ultimately the external service provider can leverage the expertise, people, and sophisticated debt management system it already has in place to provide an efficient, quality service at a competitive cost in a timely manner. This should yield improved recovery of public service debts. In light of recent developments in the OGP’s management of public sectors tenders, we would expect this trend to continue into the future.

For more information, contact a member of our Debt Recovery team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.