Outsourcing Public Health - A Real-World Test of "Make vs. Buy"

A recent directive by the NZ Government to outsource surgeries is a powerful, real-world test of procurement’s “make vs. buy” principle.

While healthcare decisions are deeply sensitive, the strategic principles are universal. Let’s consider the procurement mechanics through a classic business parallel. In logistics, the ‘make vs. buy’ question is clear: do you invest capital to build your own warehouse (make), or engage a 3PL provider (buy)?

1. Diagnose the Problem: Peak or New Normal?

First, what’s the nature of the shortfall?

• A temporary peak? A tactical ‘buy’ strategy is a flexible fix.
• A new normal of sustained demand? A long-term ‘buy’ strategy creates dependency. The prudent play is to ‘make’—investing in capacity and capability.

2. The Calculus of Delay: Invest Now vs. Pay Later?

Outsourcing can also be used to buy time. It’s a calculated gamble.

Benefits of Waiting:

• Preserves capital for other priorities.
• Gathers more data to confirm long-term trends.
• Awaits new, more efficient technologies or methods.

Significant Risks:

• Knowingly paying a higher total cost over the long term.
• Core assets (hospitals, staff capability) degrade.
• The outsourced solution becomes entrenched, and the will to invest evaporates.

3. The Search for Certainty: Public Value vs. Durability

In the public sector, long-term contracts create a critical tension. They offer stability, but can also be used to embed policy beyond political cycles. The objective can shift from delivering true Public Value to creating a durable contract—often at a premium.

This risk demands intensive, active governance. A decade-long deal can’t be ‘set and forget’. It requires:

• Robust KPIs measuring real outcomes.
• Active supplier management for continuous value.
• Watertight exit clauses to manage lock-in risk.

The ultimate danger? Creating a vast commercial management burden for years, at the expense of building the capacity and capability needed from the start.

What’s your take? In critical public services, when does a tactical ‘buy’ solution become a dangerous dependency?