03 August 2017

The problems with outsourcing will continue unless government improves its commercial capability, argues Tom Gash.

Rushed outsourcing puts additional strain on creaking justice system

The Ministry of Justice (MoJ) can scarcely go a month without a bad news story related to one of its outsourced services. The recent outsourcing of probation services - which the Institute for Government (IfG) and many others warned was rushed and risky - is not going well. Many of the new private providers say they are making big losses, despite the department providing them with some additional cash, and probation inspections are revealing concerns with the majority of outsourced work.

There was uproar when MoJ announced that G4S would be providing electronic monitoring services for offenders, given the company is still under investigation for allegedly overcharging the department for the same services between 2005 and 2013.

And this week, The Times published a Ministry of Justice admission that the savings promised when it outsourced maintenance of prison buildings to two companies in 2014 would not be delivered.

There have long been complaints about the quality of the work performed by Carillon and GEO Amey in different regions. And a recently published MoJ report reveals that “historically the costs of maintenance and services were not clearly understood by the business and consequently planning assumptions have not held true. The contract is therefore underfunded and the declared efficiency savings reduced.”

We need better information about how outsourced services are performing

In truth, it’s currently impossible to find out precisely how well contractors delivering government services perform. Prisons and probation as a whole are inspected, which provides a good degree of transparency. But when more specific parts of the services are not inspected – as in the cases of electronic monitoring and prison maintenance – MoJ, like other departments, tell us relatively little about how well private providers are doing.

This is unfair to taxpayers, for whom the debate about marketisation is politically relevant given the differing stances of the main UK parties. But it’s also unfair to providers, as we can’t tell if problems are limited to specific companies or more endemic. If government acted on its promise to open up data on contractors’ costs and performance it would also be easier for us to judge the cause of problems – though basic data will never tell the whole story. 

Outsourcing in haste has caused more problems than it solved

It is likely the 2014 outsourcing initiative didn’t get the time and attention it needed as it coincided with the much larger and more sensitive probation outsourcing. This was at a time when the number of MoJ civil servants had fallen significantly and there were vacancies in the commercial team. The IfG has written widely about the need to prioritise major projects ruthlessly, and outsourcing projects are no exception. Doing multiple outsourcing projects simultaneously can reduce competition as providers will often only have the resources to bid for select projects. And this wasn’t the only outsourcing initiative rushed through to lock in ‘savings’ before the 2015 election. 

The backdrop of understaffed and increasingly violent prisons can’t have helped with delivery. I would wager that some of the reasons jobs aren’t being done as quickly as desired include poor communication from prison staff and constraints on prison access – a particular issue when some of the maintenance work is carried out by inmates. We’ve previously recommended the use of scenario and simulation exercises to test how contracts hold up in a range of circumstances, but these exercises rarely happen.

The underestimate of existing costs and the overestimate of savings was likely the result of inadequate data, poor technical skills and insufficient frontline consultation. But this is not just a question of staff skills and processes. Those contracting out services - ministers, officials and contractors - are often prematurely heralded for delivering ‘savings’ before they become real and then are not held accountable when costs escalate in ways that could have been predicted.

Commercial staff also have little incentive to look beyond the immediate costs of the service in question. The outsourcing of court translation services prioritised costs and wasted vast amounts of expensive court time and legal expenses when translators couldn’t be found for critical sessions. Disruption resulting from maintenance failures may be somewhat lower but shouldn’t be underestimated. For example, there are costs in staff time when officers have to escort prisoners to a different block if there is no hot water. Delays in fixing plumbing or ensuring a library is accessible can contribute to a hostile mood and ultimately even violence. 

The solutions lie in stronger accountability and improved commercial capability

We urgently need better long-term performance management of government commercial staff and project owners to ensure those working on deals think about the long-term. Ministers and staff involved in projects that have gone wrong must be brought back to face Select Committee scrutiny.

But the most critical short-term steps to improve performance lies in better contract management. If providers promised to meet certain standards and are failing to, there needs to be a mature ongoing dialogue about the precise reasons and appropriate penalties must be triggered to incentivise improvement. The MoJ also needs to ensure that other departments using these providers are aware of the scale of the problems and the reasons for them – which will help inform future contracting choices.

The long-term solution lies in improving overall commercial capability in Whitehall. Cabinet Secretary Jeremy Heywood has long said that this is one of his top priorities – but now is the time for us to start seeing results. Current plans to improve commercial capability in Whitehall are focused on the right issues. But they will not succeed unless ministers and permanent secretaries recognise the importance of the issue, invest in the resources required to oversee multi-million pound contracts effectively and involve departmental commercial experts in key outsourcing decisions at an earlier stage.

Comments

The big MoJ contract failures have not been in "innovative outsourcing arrangements" but in bog-standard, relatively simple, contracts. The failings are exactly the same that government departments made in the last, ideologically-driven, outsourcing programmes of the 1980s. I suggest the Cabinet Secretary randomly selects any of the NAO reports on departmental contract failures (hospital cleaning, office cleaning, security services, maintenance and repairs etc etc) of that period and takes them for holiday reading.

The single biggest failure is to assume that contract management costs will be minimal and that those 'savings' can be offered up to Ministers as expenditure reductions or as Mr Grayling would claim 'increased efficiencies".

Further, as a major Harvard University study of outsourcing outcomes discovered: "Within 3 years of outsourcing, all the expertise and information about future opportunities has been transferred to the contractors."

It is instructive to note that, even those great outsourcers - the Mayors of US Towns and Cities - recommend that their members should keep at least 20% of any service provision in-house, as it is the only way that they will be able to be a good and effective client now and in the future.

It's not rocket science, but what is happening is criminal.

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