Chapter 4

Problems without benefits?
The Danish experience
with outsourcing andremunicipalisation
By Thomas Enghausen

In this chapter, we look closely at exposure to competitiveness in the
public sector in Denmark. We review experiences in key parts of publicwelfare service, focusing on concrete examples of remunicipalisation.
In conclusion, we present the Danish Union of Public Employees’ (FOA)
strategy for better regulation.1
Following bankruptcies in elder care, poor quality and high profits
in social services, and many unsuccessful outsourcings in the areaof cleaning services, there is increased recognition of the need to findalternatives to liberalisation policies. For example, there have beencases of remunicipalisation to redress failed experiments in outsourcing
ambulance services and refuse collection. In fact, we are seeing concrete
initiatives to curb profits on a variety of social services from thegovernment. Only time will tell whether this is a lasting trend.

Contracting out in Denmark
The public sector in Denmark is relatively large and characterisedby a high degree of contracting out in various forms, with significant
differences across sectors. Public consumption2 amounted to 25 per centof gross domestic product in 2017, equivalent to €70 billion, while in 2018
the degree of contracting out in municipalities was estimated at 27 percent of the services that can formally be handled by private companies.

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

DENMARK OF CASES 35
TOTAL NUMBER

Remunicipalisation 29
Municipalisation 6

Health care &social services

8

Waste

Energy132Highlights

Local government

12

Building cleaning and maintenance 7
Construction 1
Human resources 3
Other 1• Privatisation in the elderly care sector, imposed by flawed "free choice"policies, has proved uneconomical, with 54 cases of bankruptcy of private
providers since 2013.
• The municipality of Frederiksberg (part of Copenhagen) saved even moremoney than it expected when it decided to collect and manage its waste
through its own, employee-led company in 2011.
• Several examples of remunicipalisation and insourcing of cleaning services
by local goverments and hospitals because of quality problems and labour
standards.

In addition, the country has a long tradition of semi-public institutions,which are organised as legally independent and not-for-profit initiatives– so-called ‘institutions with self-ownership’.
Traditionally, there has been outsourcing of cleaning, technical services
as road maintenance and bus transportation, along with ambulanceservices. Other areas of the welfare state such as elder care, social services
and health have traditionally been run by public institutions. Today,
however, the private sector has an increasing share of the services pie,
partly as a result of rules on free choice between public and private carefor the citizens.3
For example, Danish law confers on municipalities the responsibility toensure that elderly citizens have the possibility to choose between at least
two alternative service providers. The municipality can choose either to
use a private provider and a public one, or to replace the public service
with a minimum of two private providers. In the case of primary schools,
while they are in majority public, there is a long tradition of private but

68Problems without benefits? The Danish experience with outsourcing and remunicipalisation

non-profit institutions (it is against the law to establish a primary school
as a for-profit company).

Consequences of multiple bankruptcies in elder care
In recent years, Denmark has experienced an increasing number ofbankruptcies in elder care services, with 54 since 2013. These bankruptcies
have affected over 13,000 citizens and well over 2,000 employees.4
Since 2003, municipalities are required by law to offer alternative municipal
homecare service options for the elderly (known as ‘free choice’). The
degree of outsourcing varies from municipality to municipality because it
depends on the number of citizens opting for private suppliers.
The relatively large number of bankruptcies must be seen in the context
of a change in legal requirements in 2013, which were meant to make iteasier for municipalities to give elderly people free choice between private
and public home care through tenders. But as a side effect the legislation
has multiplied bankruptcies, presumably because of increased pricecompetition. Since the wave of bankruptcies began, many municipalities
have reverted to the ‘old’ model where the municipality is the main
provider of elder care, and where there is competition in terms of quality,
not price.

Prevent bankruptcies and secure freedom of speech
In 2017, Parliament reached a political agreement to limit the numberof bankruptcies and to mitigate its effects if they nevertheless occur.5
Municipalities are now required to place greater emphasis on the financial
robustness of the private companies, including requirements for a bankguarantee. At the same time, the municipalities must have a greater focus
on the quality of the services.

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

The parties behind the agreement also gave employees in private carefirms better opportunities to exercise their freedom of speech andopenly report conditions in the private company to the municipality. FOA
particularly supports this last part of the agreement, which addresses
a major concern. FOA believes that the municipalities lose access tosignificant information on the service offered by private companies
if employees do not have this direct communication channel with themunicipality when they need to report problems.
However, FOA still has doubts on whether the agreement can preventand mitigate bankruptcies. FOA has therefore formulated its own
recommendations as a supplement to the political agreement. FOA
recommends, among other things, that the municipalities demand
guarantees from the suppliers that they can afford to follow the collective
agreements on wage and working conditions. The recommendations also
include a central certification (approval) model in which financial statusof the suppliers can be taken into account (as is the practice in other areasof the public sector).

Case l: Care for the elderly in Aarhus, Denmark
The municipality of Aarhus (Denmark’s second largest municipality) abandoned competition for home care through calls for tenders in 2018. Instead, the municipality has chosen a more limited
model with the approval of a single private supplier in addition to
the municipality’s own services to residents.
The shift from a high degree of competition to very limitedcompetition took place after two providers of home care to elderly
people went bankrupt. The bankruptcies were initially followed bya new tender, but then the last supplier pulled out of the market.
The main reason was that it was not possible to make good moneyin this sector.

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

After this, Aarhus reintroduced the so-called ‘approval model’.
Under this model, private companies can be approved to provide
home care, but only at a price based on the municipality’s averagecosts rather than through tender.
In 2018, the number of customers with private home help had
dropped twofold compared to 2014.6

Better regulation of private companies in social
services
Over the past few years there has been a wide debate about private forprofit companies as providers of social services (e.g. providing housing
for children and adults with physical or mental challenges). FOA has
presented several examples of private companies delivering poor
quality services while the owners reap large cash rewards. One example
highlights a very large profit from the 2017 sale of the private institutionSøbækskolerne for the sum of €18 million in total (including a special
bonus) to multinational corporation Olivia A/S. The institution delivers
services to young people with special needs, both educational training
and housing. However, the sale did not transfer the physical assets, only
the obligations to provide the service. This allows the previous ownerto continue to earn a large income by renting out buildings to the new
supplier.7
FOA has proposed much stricter market regulation for social services.
The Danish legislation for private schools is a good example to follow: It
only allows ‘non-profit’ companies, while at the same time ensuring that
there are no personal interests (profit) at stake. Similar legislation forsocial services would ensure that money be invested in the core services.

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

At the same time, there is a need for increased supervision and control
of private companies, including financial supervision. Unfortunately,
national-level negotiations for new and reinforced state supervisionbroke down in the fall of 2018.
With a new government now in place, however, we expect to see work
initiated to strengthen both regulation and control in this area. As thegovernment itself put it this work will centre on ‘how to ensure thatno profit is taken out at private day care centres and social services, forexample, according to the same model that applies today for private
schools’.8

Public alternative for ambulance services
In Southern Denmark, one of the country’s five regions, ambulance
operations were remunicipalised in 2016. This happened after new private
supplier BIOS Ambulance Services went bankrupt.
Back in 2015, the ambulance company BIOS took over a large part of theambulance services in the region. The company then won the tender incompetition with Falck A/S. Until then, in most of the country Falck A/S
had monopoly-like status as the only private supplier while the public
sector only played a role as a provider in parts of the Capital Region.
In 2016, operations were taken over by the region, which has kept
spending at a similar level while securing savings of about 15 per centcompared to the old contract with Falck A/S. At the time, the region did
not want to issue a new call for tenders with only one company remaining
on the market.
In late 2019, all regions were to discuss a new strategy for the area basedon a joint report called Strengthened competition in the ambulance market.9
The report points very specifically to the need for a public alternative to72

Problems without benefits? The Danish experience with outsourcing and remunicipalisation

private companies in the area as the only way to ensure fair competition
and to end de facto monopoly. FOA has closely followed developmentsin this area and, as a trade union, we have played a very active role in
the remunicipalisation given FOA has the collective agreement with theregions for the public ambulance services.

Refuse collection goes back to municipalities
Since 2011, the municipality of Frederiksberg (part of the Capital of
Copenhagen, but administratively independent from the city) has been
responsible for collecting household waste. It has been very cost-effective
for the municipality and thus for residents – resulting in savings of 13 percent. The municipality’s own employees work in the municipally owned
company Frederiksberg Renovation, collecting garbage from roughly
50,000 households.
An interim report prepared for the municipality after the first year of
municipal management (2011) estimated that Frederiksberg had beenable to operate this municipal service for DKK 45-46 million (€6-6.1
million). When former supplier R98 was responsible for the collection, it
cost approximately DKK 53 million a year (€7 million). The municipality
of Frederiksberg had a budget of DKK 48 million (€6.4 million) for the
first year of operations: ‘We had expected savings of just under 10 per
cent, but “Frederiksberg Renovation” has managed to do the work for 13
per cent less’.10
By way of background for this remunicipalisation, the task of refuse
collection was put out to tender in 2010 when the long-standing
monopoly of non-profit company R98 in the capital was put to an end
by The Danish Competition Authority. The competition authority felt theprivate agreement should be subject to competition.
Whereas municipal authorities in Frederiksberg then decided, after a73

Problems without benefits? The Danish experience with outsourcing and remunicipalisation

tender, to take over the management instead of handing over the task
to private companies, the City of Copenhagen chose to outsource refuse
collection without submitting its own bid for the work.
In the City of Copenhagen, outsourcing initially caused some problems,and a labour conflict arose following severe cuts after takeover by theprivate company. This happened in spite of specific procurement
requirements from the city aiming to protect the employees. Thus,
between 2014 to 2016 the private provider participated in a research
project on the working environment, which concluded that the wage rates
in the private collective agreement contributed to a poor and burdensome
working environment, despite the will and the initiatives to improve it.11
R98, the company that had previously held the contract, was a 111-yearold non-profit, fund-owned company with a long-term contract forsolid waste collection. The company was characterised by high social
commitment, good working conditions and a focus on work environment
improvements, as well as a relatively low absenteeism rate. The company
was not included in the call for tenders. Instead, the company was
dissolved in connection with the tender process, mainly for politicalreasons.
Following the failed outsourcing experiment, Copenhagen has recently
decided to take back large parts of the contract. The process of
remunicipalisation in the capital city has since been followed by several
cases in other municipalities. In 2019, 21 out of 98 municipalities inDenmark have chosen to take services back in house, in whole or in part.12

Debate on cleaning services
Denmark has a long tradition of outsourcing and competition, particularlyof cleaning services. At the same time, there has been debate for many
years about poor performance in terms of quality for the users as well as74

Problems without benefits? The Danish experience with outsourcing and remunicipalisation

low pay and working conditions for the employees.13
In 2014, a government commission formed to map productivity in
Denmark pointed specifically to outsourcing of cleaning services as a path
to higher productivity in the public sector. The commission used a 2012
review of only 10 municipalities’ experiences with outsourcing cleaningtasks as the basis for encouraging competition for social services suchas health, as well as elder and child care. According to the commission,
outsourcing resulted in ‘savings of between 13 and 54 per cent either withthe same quality as before or better’.14
In this context, the commission highlighted the ‘successful’ outsourcingof cleaning at schools in Aarhus. FOA questioned the commission’s
recommendations, and highlighted the poor results of outsourced
cleaning in general, and specifically in Aarhus.
A few years after outsourcing, private suppliers in Aarhus had only
managed to win and keep contracts to clean 25 out of 40 schools. This
happened mainly because of unacceptable quality after the outsourcing.
One private company even terminated some contracts on its own will
because the company acknowledged it could not live up to promises ofcheap, high quality cleaning.
Meanwhile FOA, in collaboration with one of the other large trade unions(3F), has accumulated experience with the remunicipalisation of cleaning
in municipalities and hospitals, including in university hospitals in
Aarhus and Copenhagen (see Case II). Remunicipalisation has happened
through cancellation of contracts as well as non-renewal at contract
expiry, with some municipalities having submitted their own in-housebid for the contract.15

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

Case ll: In-house cleaning at the Copenhagen university hospital
On 1 August 2015, Rigshospitalet (the university hospital in
Copenhagen, RH) took back cleaning services from the ISS service
company. This happened after the contract was terminatedprematurely by the hospital due to complaints about quality.
ISS had one of two major cleaning contracts. There is no fullaccounting of how much RH has paid in total to ISS, but it isestimated to be at least DKK 46 million (€6.1 million) per year.
Since coming back in house, the service centre at RH has taken
charge of the cleaning for DKK 2 million (€267,000) less per year.
The hospital department has also promised to improve service
quality.
When RH took over the work, all workers including managers
became public employees, and wages increased to the level set in
the public agreement.
FOA’s assessment is that all service components are now interconnected, which leads to better quality, proper working conditions
that meet the requirements of working environment rules and thecollective agreement, while also providing savings for the hospital.
How is it possible? Presumably, ISS extracted a huge profit out of
the contract. In order to do that, they lowered quality and working
conditions beyond what even the private collective agreement hadallowed.16

FOA’s strategy: welfare without profit
Over the past 30 years, Denmark’s welfare state has been exposed tocompetition. And outsourcing has often led to deteriorating employment

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Problems without benefits? The Danish experience with outsourcing and remunicipalisation

conditions. In 2016, the FOA Congress committed to: ‘Counteract the
many outsourcings and privatisations that lead to cuts. We will work tobring services that have been put into private hands back to the public’.
Since then, FOA work on outsourcing and privatisation has followed a
two-pronged approach:•By improving our position on and arguments against outsourcing,unnecessary profit and tax evasion;•

By ensuring that outsourcing and other forms of marketisation do notharm employees’ wages, working conditions, working environment
and job security.

Bankruptcies in elder care, poor quality and high profits in social services
such as ambulance services and refuse collection, and many unsuccessful
outsourcings in the area of cleaning have led to increased recognition andsupport for FOA’s criticism. At the end of 2019, FOA is seeing concrete
initiatives towards limiting profits in social services. Time will showwhether this trend towards more welfare and less profit will continue.
ABOUT THE AUTHOR

Thomas Enghausen is Deputy Chairman for
the Danish Union of Public Employees FOA,
Denmark’s third largest labour union. He is
responsible for the union’s economic and politicalsector, focusing on tax politics, economic policy,
insourcing and outsourcing. He holds a degree
in pedagogy and has previously held various
positions related to this field, including Chairman
for the Association for Social Pedagogy for almost
10 years.

77Problems without benefits? The Danish experience with outsourcing and remunicipalisation

Endnotes
1

FOA is Denmark’s third largest trade union with nearly 200,000 members and 38 local
branches. FOA’s members are primarily employed in the welfare service, which is largely
financed by the public sector, but increasingly includes private providers.

2

The amount of resources allocated by the government for the functioning of public services,such as the purchases in consumer goods, salaries, social transfers and so forth.

3

See Table 3 in the following report: https://www.sum.dk/Aktuelt/Nyheder/Aeldre/2018/September/~/media/Filer%20-%20dokumenter/2018/Servietjek%20frit%20valg/Servicetjek-af-det-frievalg-paa-aeldre.pdf

4

www.foa.dk and www.Konkursindex.dk

5

Bankruptcy Policy Agreement, available at: https://www.fm.dk/nyheder/pressemeddelelser/2017/10/skaerpede-leverandoerkrav-skal-forebygge-konkurser-i-hjemmeplejen

6

About home care in Aarhus Municipality for example:
https://hsfo.dk/oestjylland/Mislykket-udbud-koster-Aarhus-den-sidste-leverandoer-af-privat-hjemmehjaelp/artikel/152810

7

About ‘Profit on welfare’ (FOA): https://www.fagbladetfoa.dk/Articles/2018/05/28/Profit-paavelfaerd

8

Refer to policy on social welfare in: Government of Denmark (2019) ‘Retfærdig retning forDanmark’, Policy Paper https://ufm.dk/ministeriet/regeringsgrundlag-vision-og-strategier/regeringen-mette-rasmussens-forstaelsespapir/retfaerdig-retning-for-danmark_2019-06-25_endelig.pdf

9Danish Regions (2019) ‘Strengthening competition in the ambulances market. Recommendations from the regional working group on increased competition in the ambulance area’.
https://www.dr.dk/nyheder/penge/minister-vil-stramme-loven-i-koelvandet-paa-falck-skandale

10

About refuse collection in the metropolitan area, see for example:
https://www.kfst.dk/pressemeddelelser/kfst/2006/20061025-affaldsmonopol-skrottes/

11

About the research project on the working environment: https://amid.dk/media/4560/sundeskraldemaend-slutrapport.pdf

12

https://tilmeld.kl.dk/temadag-renovationsafdeling-201913

Evaluation of the effects of the transfer of cleaning services: RUC (2017)https://rucforsk.ruc.dk/ws/portalfiles/portal/60148155/Medarbejderkonsekvenser_Endelig_rapport_.
pdf; Other reports from same project: https://typo3.ruc.dk/effektdoku/

14

http://produktivitetskommissionen.dk/media/165599/slutrapport02042014.pdf

15

About the Productivity Commission and Aarhus Municipality for example:
http://produktivitetskommissionen.dk/media/165599/slutrapport02042014.pdf

16

Remunicipalisation at Rigshospitalet:
https://www.denoffentlige.dk/rigshospitalet-dropper-rengoeringsfirmaet-iss

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