Bringing It Back In-House Won’t Fix What Broke

The government wants to end ‘outsourcing by default’. But Whitehall has spent two decades forgetting how to run these services itself

and you cannot insource a capability you no longer have.

FM Talk · Feature · August 2026

On 18 June 2026, the Cabinet Office did something the facilities management industry had spent twenty years assuming would never happen. It declared the end of “outsourcing by default.” A new Public Interest Test will require government departments to justify rather than assume the decision to contract a service out. Cleaning and security staff across 83 central government buildings are to be brought back in-house as contracts expire from 2028. Any contract worth more than £1 million must now pass the test. Departments spending over £100 million a year with external suppliers have been told to write five-year roadmaps for rebuilding their own capability.

The reaction across much of the sector has been a blend of alarm and moral discomfort. Alarm, because the public sector is the FM industry’s largest customer by a distance; roughly £33 billion of a £49 billion visible market, or 68 pence in every pound spent on tracked contracts. Discomfort, because the government has dressed the shift in the language of ethics.

Rachel Reeves spoke of outsourced workers who “play a vital role in public services” having been “overlooked.” The accompanying guidance elevated “long-term service quality and public value” over “short-term pricing.” It is difficult to argue against dignity and value, so most of the industry has not argued at all, it has simply braced.

That is the wrong response not because insourcing is wrong, but because the debate has fixed on the wrong question. Everyone is asking who should employ the cleaner. The question that actually determines whether buildings are clean, safe and well-run is who is capable of specifying, pricing and managing the work. And on that question, the evidence is uncomfortable for both sides of the argument.

The capability the state gave away

Here is the contrarian point of view the state is choosing to walk away from outsourcing at the precise moment it is least equipped to do the work itself. Two decades of contracting out did not merely move cleaners and engineers off the public payroll. It moved the knowledge off the payroll too; the estates managers who knew how to write a watertight specification, the client-side surveyors who could challenge a contractor’s pricing line by line, the supervisors who understood what a fair day’s productivity on a hospital ward actually looks like. That expertise atrophied because there was no reason to keep it you do not maintain a muscle you have decided never to use.

Insourcing does not automatically restore it. When a department brings cleaning back in-house in 2028, it does not inherit a functioning operation. It inherits a payroll and a problem it must now recruit and retain frontline staff in the tightest labour market the sector has seen, cover sickness and absence, buy and maintain equipment, hit rising compliance standards under the Building Safety Act, and do all of it without the purchasing scale a national contractor enjoys. Whatever its faults, the contractor was a shock absorber remove it and the risk does not vanish it lands directly on the client, who has spent twenty years learning to hand that risk to somebody else.

Contracts change hands at a rate of 38%. That is not the churn of a healthy market.

It is the churn of relationships built on price rather than performance.

The critique that actually lands

None of this means outsourcing worked it frequently did not, and the government’s critique draws real blood. Too many public contracts were awarded to the lowest bidder and then managed as if the award were the finish line. Too many frontline workers were paid the statutory minimum, churned through poorly, and treated as a variable cost rather than the people who keep hospitals safe and courts open. NHS Property Services has already brought cleaning back in-house on parts of its estate, arguing that direct employment improves consistency and control. There is a genuine case that outsourcing, as practised, hollowed out both service quality and the dignity of the workforce.

But read the market data honestly and it indicates how services were bought for more than who delivered them. Contracts change hands at a rate of 38%, a churn that speaks to relationships anchored in price rather than performance. Margins are so thin that between November 2023 and October 2024 roughly one FM company in 186 became insolvent. These are not the symptoms of a healthy outsourcing model. They are the symptoms of a procurement model that treated facilities management as a commodity to be bought at the lowest possible unit cost. And notice what that diagnosis implies: if the disease is bad procurement, insourcing is not the cure.

A department that could not write a good contract will not suddenly write a good internal service specification.

The dysfunction is being relocated, not resolved.

The strongest strand of the government’s case is about pay and conditions, and it deserves its due. A workforce churned through minimum-wage contracts, with little security and less voice, is a genuine failure moral first, operational second, because insecure and poorly paid staff deliver worse and leave faster. But this is precisely where the insourcing reflex is most confused, because the state already holds a lever that fixes it without taking anyone onto the public payroll. Fair-work and minimum-standard clauses can be written directly into contracts: a required wage floor, sick pay, training, and workforce continuity, all enforceable through the award. The countries and authorities that have raised standards most effectively did so by buying better, not necessarily by employing directly. If the goal is dignity for the cleaner, the contract is a faster instrument than the payroll and it does not require rebuilding an operational capability the department may not possess.

One default replaces another

There is also a timing problem ministers have been quiet about. More than 700 PFI contracts the deals that bundled buildings and their maintenance into decades-long agreements are reaching expiry over the coming years. Each expiry is a decision point: re-tender, insource, or something in between. The government’s instinct is to insource by default just as this once-in-a-generation wave of decisions breaks over the public estate. It is replacing one default with another.

“Outsource by default” was lazy thinking. “Insource by default” is the same laziness wearing a hi-vis vest.

What would a genuinely better position look like? It would begin by admitting that the employment model is a second-order question. The first-order question is capability, and capability is expensive, slow to rebuild, and unglamorous to fund. A department serious about insourcing would spend two years rebuilding its client-side expertise before it took a single cleaner back onto the books it would treat those five-year roadmaps not as a compliance exercise but as the actual project. And it would keep a well-specified, well-managed contract firmly on the table, because for many estates the right answer will still be an external provider held to a proper standard not the cheapest bid, but not a nationalised muddle either.

For FM providers, the strategic error would be to read the announcement as an existential threat and lobby against it. The smarter reading is that the government has just admitted, in public, that it does not know how to buy these services well. That is not a market closing; it is a market telling you exactly where it is weak. The providers who thrive over the next decade will be the ones who stop selling labour at a unit price and start selling the thing the state has just confessed it lacks the capability to run an estate properly. Insourcing the cleaner was always the easy part. Insourcing the competence is the hard part, and nobody has done it yet.

Ernie Melling – Consultant Partner – IFMA Consultants Council

 – FM Talk