Government outsourcing: what has worked and what needs reform?
Introduction
Labour’s policy of bringing public services back into government hands by default would be a mistake. But senior politicians have consistently overstated how much money is saved by outsourcing services. Outsourced services are those delivered by the private or voluntary sector. This report ranks which have been outsourced successfully and which need reform.
It finds that outsourcing waste collection, cleaning, catering and maintenance services has delivered significant savings and benefits to citizens. Particularly in these areas, bringing services entirely back into government hands could lead to worse and more expensive services for the public.
The report also shows that consecutive governments have overstated the benefits of outsourcing. Senior politicians regularly claim outsourcing can still deliver 20–30% savings but there is no evidence to support this.
It highlights a series of high-profile contract failures – including security at the Olympics, welfare assessments, offender tagging and probation. These contracts have wasted millions of pounds, delivered poor services and undermined public trust. The outsourcing of probation failed on every measure, harming ex-offenders trying to rebuild their lives.
Consecutive governments have outsourced services with no market of good suppliers or in pursuit of unrealistic cost savings – and without a reasonable expectation that companies could deliver efficiencies or improve the quality of services.
The report recommends that the current government must strengthen its commercial skills and capabilities, makes ministers and officials more accountable to the public and improve the evidence base that informs outsourcing decisions.
About this report
The role of external suppliers in delivering services to the public and to government has been expanded significantly over the past 40 years. This report assesses where outsourcing has worked and where it has not, and why, and makes recommendations on how to improve the way government contracts out services.
Summary
Government outsourcing is at a crossroads. Government spends tens of billions of pounds a year on services delivered by external suppliers. Yet a string of high-profile failures has put Britain’s outsourcing model under intense scrutiny. The Labour Party has called for a wide range of services to be brought back into government hands.
But in some areas, outsourcing has delivered substantial benefits, saving money and improving services. Instead of preferring public or private on ideological principle, government should base contracting decisions on what has worked and what has not, and why.
Outsourcing, which we define as the private or voluntary sector delivering services to the government or the public after a process of competitive tendering,* has been expanded over the past four decades. Beginning in local government with services such as waste collection, successive governments have extended outsourcing to areas including front-line services and major information technology (IT) projects.
They have done so with a largely consistent rationale: that applying market mechanisms and private sector expertise to the work of government can reduce costs, raise quality and achieve wider benefits such as innovations and improved public sector efficiency.
In this report, based on more than 50 interviews with current and former government officials, suppliers, academics and industry experts, we assess whether outsourcing has met those aims. We review the evidence in 11 service areas: waste collection, cleaning, catering, maintenance, back-office human resources (HR) and IT, prisons, health care, employment services, adult social care, private financing of construction and probation. Our judgment of each is presented in Table 1 (we include a full summary of each service area in Chapter 2).
Outsourcing has worked best in ‘support services’ that are relatively simple to contract for and deliver: waste collection, cleaning, catering and maintenance. When these services were first outsourced in the 1980s and 1990s, it delivered large savings, often around 20% of annual operating costs, mostly while maintaining levels of quality. Companies therefore achieved significant efficiencies, although some savings were driven by paying staff less.
Outsourcing has worked best in ‘support services’ that are relatively simple to contract for and deliver: waste collection, cleaning, catering and maintenance. When these services were first outsourced in the 1980s and 1990s, it delivered large savings, often around 20% of annual operating costs, mostly while maintaining levels of quality. Companies therefore achieved significant efficiencies, although some savings were driven by paying staff less.
Over time, the public sector has become more efficient in these areas, meaning the comparative advantage of the private sector has got smaller or disappeared. This has led some contracting authorities to bring services back in-house. But that does not mean outsourcing has not worked – early savings have effectively been ‘banked’, and improving public sector efficiency was a key motivation for the exercise. It is doubtful that if provision were returned entirely to government hands it would deliver the levels of efficiency currently achieved while competitive pressures remain from private services.
For front-line services, the picture is more mixed. Private prisons are cheaper to run and have introduced innovations, including in how staff treat prisoners. They perform better on some quality metrics and worse on others, but the introduction of competition has improved performance in public prisons. Outsourcing has provided extra capacity in the NHS and, in some cases, improved the performance of public hospitals, but there is a lack of comparable data on cost and quality and some case studies show damaging failures.
Probation is an exception: outsourcing has failed on every measure, harming ex-offenders trying to rebuild their lives. The heavy costs show why government should be cautious about extending outsourcing of front-line services and only do so when it is confident it will work.
Outsourced IT services, on balance, appear to have often been more efficient and modern – despite multiple well-reported failures. Private financing of construction projects, on the other hand, has been more expensive while achieving unclear benefits.
Politicians and senior officials often cite 20%–30% savings when making the case for outsourcing services today.1 But while this was possible for some services outsourced in the 1980s and 1990s, we found little evidence that such savings are available today, whether for services outsourced for the first time or on second- or third-generation contracts. Where there is more recent evidence of savings, they are typically of around 5%–10%.
Across these areas, we found that government lacks the evidence it needs to inform current decisions on how to deliver services. This includes a paucity of evidence on the cost and performance of services that the public sector delivers in-house, not just those that are outsourced.
Probation
In 2015, under a programme called Transforming Rehabilitation, the MoJ outsourced the management of medium and low-risk offenders in England and Wales to 21 regional community rehabilitation companies. The rationale for introducing competition and outsourcing was that, despite increased spending on prisons and probation, re-offending had remained stubbornly high.
Community rehabilitation companies supervise 150,000 medium and low-risk offenders, and some of the 40,000 extra short-term prisoners who previously had not been managed in the probation system. They also provide some services to high-risk offenders managed by the National Probation Service. The contracts were for seven years but the MoJ decided in 2018 to terminate the contracts in 2020, two years early. In 2019, it announced that the management of offenders will be brought back in-house, although private companies will continue to provide “innovative” drug and rehabilitation services.
The case study of Transforming Rehabilitation shows that the outsourcing of probation has not worked in the UK. Quality has been unacceptably poor. As chief inspector of probation, Dame Glenys Stacey concluded that the outsourcing of probation was “irredeemably flawed” after she found 80% of community rehabilitation companies to be inadequate in at least one key quality area, and many in several, including delays and poor-quality assessments. Support provided by the public sector’s National Probation Service for high-risk offenders performed better on every metric.
Outcomes are also generally poor. The proportion of offenders who re-offended decreased slightly but the number of re-offences per offender, and the number of prisoners recalled to prison for breaching their licence, both increased for medium and low-risk offenders, while the rates for high-risk offenders (for whom probation remained in-house) saw no such increase. But interviewees questioned how much providers could be held responsible for these outcomes – even though they are partly paid on the basis of them – given they depend significantly on other localised factors such as the police, magistrates and judges.
Nor does the outsourcing appear to have delivered the intended cost savings. The MoJ has had to invest at least £467m more than was required under the contracts because the contracts were not delivering a good-quality service. This is still less than was initially anticipated at the outset of the reforms, but as the NAO has said the department has made little progress in transforming rehabilitation. One industry expert speculated that the programme had probably cost roughly the same as the previous programme, while dealing with more offenders, but it is not possible to confirm this. An audit of the contract in 2019 concluded that it had provided “poor value for money”.
Unfortunately, it is not possible to rigorously compare the cost and quality of probation services before and after they were outsourced. We found no rigorous comparative evidence, in part because outsourcing in this area is only a recent phenomenon, but also because of changes in the service and problems accessing data held by suppliers. We found no comparable evidence from other countries, because probation has not been outsourced in most countries. Announcing in 2018 that the services would be brought back in-house, the MoJ itself recognised that outsourcing had not worked as it had hoped. Sector experts agreed. We set out the reasons why the outsourcing of probation hit so many problems in the next chapter.
3. Why has outsourcing succeeded or failed?
Probation
In 2015, under a programme called Transforming Rehabilitation, the MoJ outsourced the management of medium and low-risk offenders in England and Wales to 21 regional community rehabilitation companies. The rationale for introducing competition and outsourcing was that, despite increased spending on prisons and probation, re-offending had remained stubbornly high.
Community rehabilitation companies supervise 150,000 medium and low-risk offenders, and some of the 40,000 extra short-term prisoners who previously had not been managed in the probation system. They also provide some services to high-risk offenders managed by the National Probation Service. The contracts were for seven years but the MoJ decided in 2018 to terminate the contracts in 2020, two years early. In 2019, it announced that the management of offenders will be brought back in-house, although private companies will continue to provide “innovative” drug and rehabilitation services.
The case study of Transforming Rehabilitation shows that the outsourcing of probation has not worked in the UK. Quality has been unacceptably poor. As chief inspector of probation, Dame Glenys Stacey concluded that the outsourcing of probation was “irredeemably flawed” after she found 80% of community rehabilitation companies to be inadequate in at least one key quality area, and many in several, including delays and poor-quality assessments. Support provided by the public sector’s National Probation Service for high-risk offenders performed better on every metric.
Outcomes are also generally poor. The proportion of offenders who re-offended decreased slightly but the number of re-offences per offender, and the number of prisoners recalled to prison for breaching their licence, both increased for medium and low-risk offenders, while the rates for high-risk offenders (for whom probation remained in-house) saw no such increase. But interviewees questioned how much providers could be held responsible for these outcomes – even though they are partly paid on the basis of them – given they depend significantly on other localised factors such as the police, magistrates and judges.
Nor does the outsourcing appear to have delivered the intended cost savings. The MoJ has had to invest at least £467m more than was required under the contracts because the contracts were not delivering a good-quality service. This is still less than was initially anticipated at the outset of the reforms, but as the NAO has said the department has made little progress in transforming rehabilitation. One industry expert speculated that the programme had probably cost roughly the same as the previous programme, while dealing with more offenders, but it is not possible to confirm this. An audit of the contract in 2019 concluded that it had provided “poor value for money”.
Unfortunately, it is not possible to rigorously compare the cost and quality of probation services before and after they were outsourced. We found no rigorous comparative evidence, in part because outsourcing in this area is only a recent phenomenon, but also because of changes in the service and problems accessing data held by suppliers. We found no comparable evidence from other countries, because probation has not been outsourced in most countries. Announcing in 2018 that the services would be brought back in-house, the MoJ itself recognised that outsourcing had not worked as it had hoped. Sector experts agreed. We set out the reasons why the outsourcing of probation hit so many problems in the next chapter.
3. Why has outsourcing succeeded or failed?
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But in several areas, including electronic monitoring and probation, government has outsourced services without a well-functioning market and has paid too little attention to generating competition. As we highlighted in earlier work, this not only jeopardises the potential gains of competition described above, it also increases the likelihood of opportunism from suppliers and risks problems with service performance.
The outsourcing of the electronic monitoring of offenders, where the market has been dominated by two suppliers (G4S and Serco), demonstrates how an uncompetitive market risks supplier opportunism. In 2013, when the Ministry of Justice’s (MoJ) contracts with the two companies came up to be re-tendered, it discovered “significant anomalies” in billing practices: both had charged the department for tags that had never been fitted. In the summer of 2013, Serco and G4S withdrew from the tender process for the electronic monitoring contract. In December 2013, interim arrangements were put in place for Capita, the remaining supplier in the bidding process by the end of the financial year when the contracts were due to expire, to take on the contracts. G4S subsequently won a further contract for the provision of tags.
Such uncompetitive markets are liable to suppliers abusing their power – and the exit of one or two suppliers can leave government in a poor position with limited bargaining power. The NAO found that the contracts failed to deliver promised quality outcomes, while it is unclear whether projected cost savings were achieved.
Several subsequent attempts at procurement hit problems partly because the market was not sufficiently competitive. Interviewees suggested that there was an early assumption in government that reputational risk would ensure that private providers performed well, but that has not proved to be the case – and in many cases where markets are weak, suppliers win further contracts soon after serious failures.
The outsourcing of probation services shows how outsourcing without a well-functioning market contributes to poor service performance. While some probation service providers had provided specific interventions, the full management of offenders had not been outsourced before in the UK, or anywhere else using the model the UK adopted.19 At the time, the Institute for Government and others warned that the absence of capable suppliers, combined with the difficulty of contracting probation services, made outsourcing a poor choice.
Interviewees told us that major outsourcing companies issued similar warnings – and late in the procurement process the department struggled to ensure that it had enough bidders for contracts in some regions and had to approach suppliers directly to encourage them to step forward. By requiring that organisations bidding to be one of the 21 ‘prime contractors’ had a ‘parent company guarantee’ – effectively taking on financial risk – the department excluded voluntary sector organisations and social enterprises with experience in this area from bidding to become prime contractors. Many of the companies that won contracts had minimal prior experience, which in some cases contributed to the widespread failures to provide a quality service.
But in several areas, including electronic monitoring and probation, government has outsourced services without a well-functioning market and has paid too little attention to generating competition. As we highlighted in earlier work, this not only jeopardises the potential gains of competition described above, it also increases the likelihood of opportunism from suppliers and risks problems with service performance.
The outsourcing of the electronic monitoring of offenders, where the market has been dominated by two suppliers (G4S and Serco), demonstrates how an uncompetitive market risks supplier opportunism. In 2013, when the Ministry of Justice’s (MoJ) contracts with the two companies came up to be re-tendered, it discovered “significant anomalies” in billing practices: both had charged the department for tags that had never been fitted. In the summer of 2013, Serco and G4S withdrew from the tender process for the electronic monitoring contract. In December 2013, interim arrangements were put in place for Capita, the remaining supplier in the bidding process by the end of the financial year when the contracts were due to expire, to take on the contracts. G4S subsequently won a further contract for the provision of tags.
Such uncompetitive markets are liable to suppliers abusing their power – and the exit of one or two suppliers can leave government in a poor position with limited bargaining power. The NAO found that the contracts failed to deliver promised quality outcomes, while it is unclear whether projected cost savings were achieved.
Several subsequent attempts at procurement hit problems partly because the market was not sufficiently competitive. Interviewees suggested that there was an early assumption in government that reputational risk would ensure that private providers performed well, but that has not proved to be the case – and in many cases where markets are weak, suppliers win further contracts soon after serious failures.
The outsourcing of probation services shows how outsourcing without a well-functioning market contributes to poor service performance. While some probation service providers had provided specific interventions, the full management of offenders had not been outsourced before in the UK, or anywhere else using the model the UK adopted.19 At the time, the Institute for Government and others warned that the absence of capable suppliers, combined with the difficulty of contracting probation services, made outsourcing a poor choice.
Interviewees told us that major outsourcing companies issued similar warnings – and late in the procurement process the department struggled to ensure that it had enough bidders for contracts in some regions and had to approach suppliers directly to encourage them to step forward. By requiring that organisations bidding to be one of the 21 ‘prime contractors’ had a ‘parent company guarantee’ – effectively taking on financial risk – the department excluded voluntary sector organisations and social enterprises with experience in this area from bidding to become prime contractors. Many of the companies that won contracts had minimal prior experience, which in some cases contributed to the widespread failures to provide a quality service.
Why warnings on TR2 need to be heeded.
ReplyDeletehttps://amp-theguardian-com.cdn.ampproject.org/v/s/amp.theguardian.com/society/2019/sep/19/alex-malcolm-jury-points-to-failings-by-probation-service?amp_js_v=a2&_gsa=1&usqp=mq331AQCKAE%3D#aoh=15689627316444&referrer=https%3A%2F%2Fwww.google.com&_tf=From%20%251%24s&share=https%3A%2F%2Fwww.theguardian.com%2Fsociety%2F2019%2Fsep%2F19%2Falex-malcolm-jury-points-to-failings-by-probation-service
A jury has concluded that a five-year-old boy was unlawfully killed by his mother’s former partner, and condemned the probation service for a litany of major failings.
DeleteAlex Malcolm was beaten to death by Marvyn Iheanacho, the former partner of his mother, Liliya Breha, after the boy lost one of his trainers in a park in November 2016. Although the probation service knew about Iheanacho’s violent history and of Breha’s existence, they failed to warn her about him.
Breha was horrified at the conclusion of Iheanacho’s murder trial in July 2017 to hear for the first time that he had a string of previous convictions dating back to 1994 for violent offences against women and children.
According to the terms of Iheanacho’s licence, he was not supposed to have unsupervised access to children under 16, and probation officers were supposed to monitor any new relationships with women.
The jury in the inquest at Southwark coroner’s court found that the probation service wrongly classified Iheanacho. They also found that he was “a manipulative high-risk offender with a history of domestic violence who intimidated probation officers”.
They identified a series of failings by the probation service, and found that major changes to the service introduced in 2014, by the former justice secretary Chris Grayling, contributed to Alex’s death because the changes led to higher workloads and put significant pressure on staff. The service was understaffed, the jury concluded, leading to further pressures, and fragmented information held by different agencies did not enable effective information sharing.
A newly qualified probation officer, Hannah Evans, who was supervising Iheanacho, told the inquest: “Frankly, I was afraid of him. I think I was not sufficiently robust in challenging his behaviour.”
At the conclusion of the inquest, the coroner, Andrew Harris, said he would be making a “prevention of future deaths” report focusing on the shortage of approved premises into which violent offenders like Iheanacho could be released from prison, failings in the multi-agency provisions, and difficulties of recruitment and retention in the probation service.
Breha welcomed the jury’s conclusions. Speaking after the inquest, she said: “I have spent months and years trying to get to this point to understand why I was never told about Marvyn’s previous convictions. The inquest has exposed the dreadful and horrible failures of probation in the supervision of the man who killed my son, not only on an individual level but also in the systems that were operated.
“I have heard harrowing evidence in the inquest which went beyond my imagination. I hope that Alex’s memory can continue to help others and prevent something as horrible as this from happening again.”
Breha has received help from Victim Support and is training to be a worker for the charity.
“I meet other people who have lost children to homicide and talk to them about my experience. For so long after Alex’s murder I thought, what’s the point, there’s no purpose in life. I couldn’t get out of bed in the mornings. I understand that I just have to live with this. But the pain and the grief will never go away.”
Breha’s solicitor, Harriet Wistrich of Birnberg Peirce solicitors, said: “The probation reforms – Transforming Rehabilitation – had an impact on cases like this one. There has been a failure in the probation service to understand violent sexual offenders and domestic violence.”
Harry Fletcher, a former head of the probation union Napo and now a campaigner for victims’ rights, said: “We have heard about an appalling litany of failings in this inquest. But because [of] the state the probation service is in now, I fear something similar could happen again.”
A Ministry of Justice spokeswoman said: “Our deepest condolences remain with the victim’s family, and we apologise unreservedly for the unacceptable failings in this case – we will now carefully consider the coroner’s findings. In the three years since Alex’s tragic death, the National Probation Service in London has undertaken a huge programme of work to improve standards and better protect the public. Over 1,300 probation staff in London have attended specialist domestic violence and child safeguarding training and we have recruited a further 180 trainee probation officers over the last year.”
DeleteSelen Cavcav, senior caseworker at the charity Inquest, said: “The critical conclusion of the jury once again exposes the consequences of the rushed and ill informed ‘transformation’ of probation services. Multiple opportunities to protect Liliya and Alex were missed, as their safety was put in the hands of inexperienced individuals working in overstretched services. This inquest has performed a vital function in publicly scrutinising these systemic failings, which must urgently be addressed at a national level.”
They're all lying bastards. Not one of them gives a toss about service users, clients, their families, staff, etc.
ReplyDeleteThey're career bullies, egotistical arselickers & ideological fascists. Even after being pushed out of post, after overseeing the most catastrophic period of prisons & probation provision, someone still has the brass neck to take a considerably expensive gift & take a podium to speak about probation service provision.
Whether its Jim Brown here or any other journalist elsewhere prepared to expose the truth, not one of the political class will give a shimmering shit.
TR2 will happen because those with financial clout & those with real power will make it so.
And the faux fight must go on because Napo need your subs to pay the not insubstantial wages of their selfless generals.
Dividing the provision of probation services has been impressive; it has divided & diluted every aspect of service delivery in both privateer & public sectors to the point of pointlessness.
People have died; but MoJ/HMPPS aren't especially bothered about the loss of life. They're more concerned about reputational harm: "In the three years since Alex’s tragic death, the National Probation Service in London has undertaken a huge programme of work to improve standards and better protect the public." Bit fucking late for Alex isn't it Michael?
Let's have the truth - Napo must know how many experienced staff were lost to both NPS & CRCs as a result of the disaster that was TR?
Meanwhile napo seems to have given up with twitter since 12th August - https://twitter.com/Napo_News/status/1160891503474069504?s=20
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