G4S and competition regulation in public services

Last year, the Government made it clear that G4S bids would not be welcome after identifying billing irregularities in its contract to provide electronic tagging services. But yesterday, the Government issued a statement implying that G4S will once again be considered seriously if it bids for government contracts. Cabinet Office Minister Francis Maude said, “the Government has now accepted that the Corporate Renewal Plan [put forward by G4S] represents the right direction of travel to meet our expectations as a customer”. Assuming the Government is right to have confidence that G4S is back on track, this could be good news for taxpayers. One of the major problems highlighted in a range of reports, including Making Public Service Markets Work, is that there is often a lack of competition for government contracts. For large and highly specialised national service contracts, government regularly finds itself choosing between just one or two bidders. Until last year, for example, Serco and G4S were the only providers of the electronic tagging services on which the National Offender Management Service relied. Two providers hardly leads to intense competition. But once G4S and Serco had been barred from bidding after billing irregularities emerged, matters actually became worse. Capita essentially won the current contract in an uncontested procurement process which some professionals say should have been declared void. The gradual return of G4S (which follows Serco’s own rehabilitation) is not, however, enough to solve the problems of a lack of competition – there are now just three potential bidders for an area like electronic tagging. Francis Maude has acknowledged this, stating “we are redoubling efforts over coming months, including working to build commercial skills across the civil service and create a world class Crown Commercial Service that supports all departments”. These are positive steps. But perhaps the most significant opportunity to address these problems lies in the newly created Competition and Markets Authority (CMA), which officially opened its doors for business last week. It will, among other things, look carefully at levels of competition in public service markets in the coming years. The CMA’s predecessor organisations, the Office of Fair Trading and Competition Commission, had always been somewhat shy about investigating more complex and politicised industries. The CMA is likely to have most impact if it can get involved early on in government programmes. Early design decisions are, after all, often those that have the biggest impact on who can bid for work – for example, decisions about whether to have national, regional or local contracts and whether to bundle services and assets. The CMA has staff with the expertise to help departments to understand the competition implications of such decisions – and has offered to help departments who ask for their expertise. But the CMA cannot oblige them to seek out advice. This is why we have suggested that all major outsourcing projects should be subjected to early scrutiny by Major Projects Authority, who should in turn oblige departments to show that they have conducted a market study – using the CMA or another provider of economic advice – prior to releasing project budgets. The CMA should also help by actively investigating mergers. In private markets, the Competition Commission has previously broken up numerous companies in consolidated markets. But it is clear that merger rulings in the public sector are both more complex and politically contested. There was recently a protracted debate between the OfT and Monitor (the main economic regulator of UK health services) about the appropriateness of the merger of two NHS trusts in Bournemouth and Poole. In the end, the Competition Commission cancelled the merger due to a lack of evidence that it “would result in overall benefits for local patients” – but trust managers, Department of Health and Monitor officials were not fully confident that the process or the outcome had been satisfactory. Given that private companies often compete directly with public sector players, there is also a particular hurdle to overcome. Competition authorities have never brought a legal action against a public body for anti-competitive practice. Will the CMA have the stomach for such a move, if needed, and if so, will they get political backing for it? We also need a serious investigation of current levels of competition. In addition to having services where there is limited competition, our research has highlighted services where there are lots of providers but still very few who can offer services in certain parts of the country. We have previously argued that the Cabinet Office or the Treasury should initiate an immediate cross-sector review of levels of competition in each region of England and Wales to highlight any geographic or service areas where there is inadequate competition. In short, current steps to increase competition are welcome – but more needs to be done. Because if there isn’t competition in public service markets, there is really no point in contracting out services at all.