Omnishambles Update 75

The voluntary sector continue to feel suspicious about what kind of deals the MoJ are trying to stitch up, as discussed in this blog on the bigsocietycapital website:-

Delving deeper, the picture seems less rosy for the social sector. 

• Only one out of twenty-one lots has been won by a socially-led consortium. This is the ARCC consortium in Durham Tees, which is a relatively small lot accounting for less than 3% of the total TR programme value. 
• Five lots have been won by joint ventures that have a degree of social sector involvement or equity stake, although in one case we believe the charitable JV partners have a very small equity share in the JV. 
• A further fourteen lots have been won by 'partnerships' or 'strategic partnerships' between private-for-profit and social sector organisations. Hopefully the best of these partnerships will contractually establish respective roles of different partners with clear expectations of who will get what work, on what terms. But other arrangements may be looser and more fluid, and we saw in the Work Programme that voluntary sector partnerships with private companies do not always work out well.

At the end of the day it is not the number of voluntary sector and mutual providers named in TR bids that matters, but the volume of work they get and amount of positive impact they can create for the most disadvantaged and vulnerable in society.

Transparency on major contracting flows is needed

One way for the MoJ to quickly quell suspicion of so called social window-dressing is to commit to the full publication of major sub-contracting workflows (anything say more than 10% of annual contract value) within each lot. This way everyone can see what value of work the major members of a partnership are picking up. Strong partnerships would have nothing to hide. There is still just time to write these requirements into contracts which are due to be signed over the next few weeks. This would fit very well with the Government’s transparency agenda and its founding membership of the Open Government Partnership.

There is an underlying large size bias in these contracts

Contract transparency will go so far in determining how TR works out for charities, social enterprises and mutuals. But there has been a deeper, more structural issue with TR that is challenging, if not impossible, for the social sector to overcome – and this is its bias towards large organisational size.

Preferred bidder consortia all have at least one multinational member with assets in the hundreds of millions, if not billions, with the exception of one (Seetec with total assets of £43mm). There are practically no charities, social enterprise or mutually-owned organisations that have assets anywhere near the size of the winning TR bidders, unless they have evolved out the social housing sector or are a grant-making endowment charity. Sure enough, many extremely credible service delivery organisations, such as CRI, were competing in the late stages of TR bidding, are now conspicuous by their absence as prime contractors. Does this mean the future for these organisations in the big government outsourcing markets is limited to minority JVs and sub-contracting to big private companies?

The signs of a large-size bias were increasingly obvious as the TR bidding process advanced. Part of the problem was the sheer stamina needed to survive 13 months and counting since the procurement formally opened, the thousands of documents dropped into the data rooms, the multiple shifting deadlines, the two full bid resubmissions, the multiple redesigns of the payment mechanism that underpins all commercial modelling. Not to mention the pre-contract award investment in IT and other infrastructure key to rapid contract mobilisation. All of this is of course harder for smaller organisations to keep pace with, although not impossible, we know and worked with charities and social enterprises that persevered despite those hurdles.

The Parent Company Guarantee requirements are particularly problematic

Most problematic though was the MoJ's insistence on a large (100% of annual contract value) and broadly defined 'Parent Company Guarantee'. Companies with large balance sheets and who directly oversee service delivery can, to an extent, stomach this - although we are sure the TR guarantees led to much queasiness in even the loftiest private sector boardroom. That is because parent companies have the information rights to spot issues early, the control rights and service delivery expertise to sort problems quickly, and ultimately they are big enough to spread the adverse financial impact across a broader business if things go really wrong and the guarantee is called. But bidders with smaller balance sheets had to either ‘bet the ranch’ (rarely a prudent thing for a charitable trustee to do) or look to a third party to provide a guarantee on their behalf. It goes without saying that third parties cannot also be parent companies (by definition), and they also lack the information, control or expertise over service delivery that a parent company has.

Big Society Capital had several conversations with insurance brokers about backing the parent company guarantees required in TR. It is telling that none would offer the full amount of the guarantee. We pointed out to the MoJ on several occasions the difficulties the social sector or indeed any SMEs would have in meeting parent company guarantees for TR. But it seems we did not get very far. BSC was itself prepared to offer a form of guarantee (even as a third party) to three very credible socially-led bids, but sadly they either withdrew from the competition or were not ultimately successful.

As the winning bidders continue to panic about whether to proceed or not, they would do well to learn from Serco's experience. A contributor from yesterday:-

When bidders read this blog they probably think much of what's said is just aimed at trying to put them off bidding for contracts. But given the chaotic and confused nature of probation services currently, caused by fogged thinking, political ideology, and untested haste, bidders would do well to read these words from Serco today, and please keep in mind whilst doing so, that their contracts are far less complicated then probation contracts.

Serco said it "has failed to manage effectively the fact that over recent years there have been significant advances in public sector contracting, particularly in the UK, with new models that transfer substantially more risk to suppliers." As a consequence, we now have a number of contracts which are making large losses, and others which are in sectors where we are sub-scale."

 From the Guardian yesterday:-

Serco shares crash after latest profits warning

Shares in Serco, the outsourcing company that runs railways, prisons and GPs out-of-hours services, crashed by a third after the firm shocked the market with the fourth profit warning this year. The company, which employs 120,000 people across 30 countries, suspended its dividend and said it planned to tap shareholders for £550m in new funds. It also confirmed plans to sell non-core assets in an attempt to restore its fortunes.

The government services group, which has been dogged by scandals, including overcharging the taxpayer for tagging prisoners, said it was writing down the value of its business by £1.5bn. Profits for 2014 are now expected to be £130m-£140m, around £20m lower than forecast, with the outlook downgraded for 2015.

Serco has also increased provisions for a number of UK contracts by £150m-£200m, after running into trouble in several areas. One of Serco’s problem contracts is providing housing for vulnerable asylum seekers, where it has been criticised by the government’s spending watchdog for failing to provide habitable properties. Serco’s prisoner escort service to the UK government, where police were called into investigate alleged fraud, has also generated lower revenues than expected. Serco has also taken losses on its service to the Royal Navy, where it supports Sea King helicopters in search and rescue missions. 

Grayling continues to believe there are 'fifth columnists' everywhere as outlined by Ian Dunt on the politics.co.uk website:-

'An interesting minister': Withering attack on Grayling over charity paranoia

Chris Grayling's paranoia over a Labour-supporting fifth column in the charities sector is well-documented, not least by himself when he elects to write another piece for the Telegraph or Conservative Home. The justice secretary believes leftist agitators have hijacked prison charities and used them to oppose 'common-sense solutions' to our prisons.

What rather calls into question Grayling's account is that their concerns are echoed by the chief inspector of prisons, independent monitoring boards, the Prison Governors Association and Lord Rambotham, the former prison inspector who is still a key figure in the sector.

Andrew Neilson, director of campaigns for the Howard League, one of the independent groups accused of being a Labour-supporting body by Grayling, was asked recently about the justice secretary's charge against his organisation by MPs on the justice select committee.

"How do you respond to the secretary of state's assertion that the language used by some pressure groups and commentators to talk about prisons ‘bears little relation to reality'? Do you recognise the conclusion that the system is less overcrowded than a decade ago and that assaults are lower than five years ago?"

Neilson answered:

"The secretary of state is certainly an interesting minister, one who clearly takes the view that the best line of defence is attack. Perhaps a more mature public figure would accept informed criticism for what it is. It is not just so-called pressure groups, non-partisan as we are and bound to be so by our charitable status, who have spoken out but key figures in the sector. We are all describing a prison estate that has deteriorated rapidly and significantly."

Grayling has been in trouble in the Lords recently:-

SARAH just ‘another Grayling gimmick’

Lord Beecham then took up the baton describing the Bill as "another Grayling gimmick" and highlighted other issues with which the Lord Chancellor should be more concerned.

"The prisons are in crisis - understaffed, overcrowded, with a rising incidence of self-harm and suicide," he said. "The judiciary complains of the difficulty, delay and cost caused by the increase in unrepresented litigants denied legal aid. The magistracy is greatly concerned about the decline of local justice, exacerbated by court closures and the increasing reliance on professional district judges. An untried and risky change in the probation service is under way, beset by the loss of experienced staff and reports of confusion and disorganisation. The Lord Chancellor's response is what can only be described as another Grayling gimmick." 

According to the bosses at NPS, everything's just going swimmingly:-

Directors’ update

Last week, the preferred bidders for the Community Rehabilitation 
Companies were announced. This week there was one revision after 
the Ministry of Justice was unable to reach an acceptable agreement 
with Geo Mercia Willowdene, the preferred with bidder for Warwickshire & West Yorkshire. The MoJ is now in discussions with EOS, another bidder, and you can read more about this process on the MoJ website.

While the preferred bidder announcement will not affect NPS staff immediately, it was nevertheless an important milestone for the TR Programme to reach and will have been of significant interest to our CRC colleagues. It means that the Programme remains on track.

While there is still plenty of work to be done with preferred bidders before the contracts are signed with the ultimate CRC providers, there is a real breadth of organisations shown in the preferred bidder list. Many of the main or partner bidders will be familiar as organisations we have worked with in our probation work, including of course some mutuals.

Just as important we have been able to report to Ministers that our key performance indicators continue to be maintained and that performance against new processes, in particular CAS and RSR recording is continuing to increase in line with the trajectory we have set. Thank you all for your efforts on this. Another piece of good news, 276 PQF trainees started at the end of October demonstrating our commitment to the future – both NPS and CRCs.

There has always been a tradition of probation being a learning service and one where we are reflective about what we do. The learning we have had to go through in recent months has been steep and at a time when everyone has been extremely busy.

The improvements in our performance indicators and our collective ability to resolve the issues we have come up against reflects this learning culture and the professionalism of everybody involved in probation. We both thank you all that you are doing.

Colin Allars, Director of Probation
Sarah Payne, Director NOMS in Wales

Looking at the wider picture, the Guardian highlights that talk of even greater public spending cuts is causing unrest within Tory ranks:-

Treasury asks top civil servants to find £30bn in public service cuts

Whitehall’s most senior mandarins have been asked by the Treasury to draw up details of how an extra £25bn-£30bn in public spending cuts could be imposed a year after the next general election, according to cabinet insiders.

The cuts being sought from permanent secretaries would cover the two years after the existing agreed spending review period comes to an end in April 2016, and so would cover the financial years 2016-17 and 2017-18.

It had been known spending cuts of this order would be required in the two years as part of the Treasury deficit-reduction plan, but it had not been known that the Treasury was already seeking detailed examples of proposed cuts. An indication of government thinking is expected in the autumn statement on 3 December.

Some cabinet ministers are aghast that plans are being drawn up privately for cuts going so deep into the next parliament and believe a public debate should be under way now rather than make plans in private before the election. “We need a public debate around all this, and not for this to be decided in a private conversation between the treasury and the civil service,” a source said.

Finally, an academic at Sheffield University explains why the next general election is heading into uncharted waters and that the public are at last showing signs of being fed up with neoliberalism:-

What does all of this add up to? It is obvious: a political economy that has failed its people and a politics that is lashing about wildly trying to develop a coherent response. Politics is always fundamentally a politics of political economy – the play of agents responding to and seeking to manage structural changes in society and the economy. This is the politics that we need now to be talking about in Britain. Everything else is either fluff or derivative of this core crisis.

One final point, a point of conjecture still at this moment: do these various trends show that, at last, neoliberalism is unravelling in Britain, and unravelling, what is more, from below? Many have noted that the anticipated anti-neoliberal moment did not occur after 2008-9; instead, the mainstream political elite turned to either the actual pursuit of neoliberal austerity (the Conservatives and Lib Dems) or its mimicry (Labour). However, in politics change often begins at the bottom and forces its way to the political surface. Possibly, just possibly, the British people in their apparently contradictory reactions to the crisis are now signalling that they have had enough of neoliberalism and want something that actually delivers to their aspirations and needs.