Obfuscation Masterclass 4

Q66 Chris Evans: I want to move on to the contracts. When I first came into this place nine years ago—would you believe?—I served on the Justice Committee between 2010 and 2012. Serious issues were being raised at the time, especially within the justice system and NOMS, about payment by results. That was raised by the Justice Committee on several occasions even after I left. Why did you use payment by results in this case, even when there were concerns for the probation service? 

Sir Richard Heaton: As Mr Spurr tried to explain earlier, there was, I will not say a philosophical belief, but a belief, on some evidence, that if you incentivised providers to do the thing we cared about most, which was to reduce reoffending, they would economically be driven to do things that achieved that result, and therefore a payment-by-results mechanism would be the right mechanism to incentivise and reward them. There was some evidence for that, I think, from the early signs from the Doncaster and Peterborough trials—that actually there were innovative, amazing things that new providers could do, with fresh insights, that would improve recidivism. I think on the back of that evidence, payment by results was imposed. 

There was one aspect of payment by results that we have not mentioned, which has also caused us difficulties—in a spirit of complete candour. There is nothing wrong with payment by results to provide a top-up where something has been achieved, that you want. I think a failing in these contracts—or a flaw in these contracts—was that we failed to safeguard the core costs of delivery. What you should not do when you are designing a payment-by-results contract is allow the core costs of public service delivery to be jeopardised by failure to achieve payment by results. If you are trying to achieve a public service you need to pay for it. Payment by results as a top-up for an additional benefit is, I think, more respectable. 

Q67 Chair: I am going to ask Mr Lodge, from the National Audit Office, to give us some clarity on this point. 

Oliver Lodge: I just wanted to point out for clarity, as it has been mentioned a couple of times, that the Peterborough and Doncaster pilots were quite different from the model pursued under Transforming Rehabilitation, in the sense that they were based within prisons. My understanding is that participation in them was voluntary, as well, rather than compulsory. So there were some significant differences. 

Sir Richard Heaton: You are quite right, and the Peterborough one was a social impact one, which is absolutely not the model we have used here. I only adduced them to illustrate what was in the air, which was that there was a feeling that if you created the right financial incentives people would do interventions which would— 

Chair: We have certainly covered this in previous work we have done— that these were not piloted. We have talked today about the breakneck speed, so we know some of the challenges. 

Q68 Chris Evans: Rather than innovate, payment by results placed additional financial pressure on CRCs. 

Sir Richard Heaton: It did, indeed. 

Q69 Chris Evans: How did that come about, if you were just looking for results and innovation? 

Sir Richard Heaton: As I say, I think because the measure was not one sufficiently within their control, partly because of the time lag and partly because reoffending is really complicated and depends on factors like housing and access to benefits and so on; and partly because—I think 18% of the contract value was through payment by results—effectively it put too much at stake, and if they failed to achieve the targets not only did they not get that reward but their cost base was undermined, so it was an element of the contract, which, I think, looking back on it, we should have done differently. 

Q70 Chris Evans: Before I move on from this section, obviously lessons have to be learned. What has been learned about the payment-by-results model, and about contractors’ overcost? 

Sir Richard Heaton: For me, it would be the point I have just made: you must not put payment for core services at risk. Secondly, the reoffending rate is possibly the wrong measure, because it is too attenuated. I would go for proxy outcomes instead. Thirdly, I think, it assumes that the system is prepared to accept zero intervention. In other words, it assumes that the system is ambivalent as to whether an intervention takes place, whereas, as we have discussed, the system, including ourselves and including the inspector, actually requires interventions to be made. So payment by results, which implies you can do nothing if you think that is the best way to achieve a result, is not satisfactory. Those would be my main learnings on this point. 

Chair: So they will inform your next procurement. 

Q71 Chris Evans: I want to go on now to ICT systems, and I have to say this is like groundhog day. It seems every Government Department in front of us has problems with IT. Could you just go through the problems you have had with the gateway system, please? 

Sir Richard Heaton: I will start and Mr Spurr may wish to fill in the details, again. When the probation trusts came into the Ministry they brought with them, as you might expect, many different computer systems, none of which were compatible, and many of which were not very good. A successful effort was made to choose the best of those and to create a national system. There was then a commitment made, during the course of transfer of rehabilitation to the CRCs, that we would deliver what we called a strategic partner gateway, which was quite a complicated software gateway into our system, so people could plug into it. We were 12 months late in delivering that. We did deliver it in September 2016, but 12 months too late. That commitment was probably made at a time when things were moving very quickly. Again, in retrospect, it probably was not the right commitment. A better one would have been to say, “We’ll put our national system on to the cloud and provide modern API interfaces, and you can simply plug into them,” which is how we would do it these days. We promised a rather cumbersome, old-school way of connecting up, and it was 12 months late. We acknowledge that that was a fault. 

Q72 Chris Evans: You have paid out £23.1 million in compensation to various CRCs. Do you think that this has damaged your reputation, and the confidence that CRCs have in working with you in future? 

Sir Richard Heaton: I hope not. We have a very constructive relationship with the CRCs, both the probation officers on the ground, who are excellent, and their management. I hope that we dealt with this in the course of our long and difficult contractual relationship in a professional way. I do not think that it has undermined their overall confidence in us. It was one of those things that did not go as well as it should have done. Do you have a different perspective? 

Michael Spurr: No, I think you have summed that up right. Getting a national system for probation was difficult in itself. That took longer. We did put it in place. We were delayed in putting in the partner gateway. A lot of the providers themselves have found their own difficulties in developing their own systems to link into that gateway, which demonstrates for all of us that this is tricky. The world moves on very quickly. The cloud options were not seen then in the way that they would be today. That makes things more straightforward. Having a national system, whoever is delivering the service, so that everybody has one care system to work through is important. That is one of the things that we take from this. 

Q73 Chris Evans: Why are so few CRCs using the gateway system? Is the lack of confidence a reason? Why are they opting not to use it? 

Michael Spurr: The majority of them have chosen to continue to use the national system that we produced, nDelius, itself directly without using their own. Two are using the gateway to link into our system, and some have developed some of their own, but there are various reasons why they have done that. Forgive me for saying this again, but they have spent some money on this in terms of innovation; I suspect that they have decided to spend no more money on it, given where we have got to. 

Q74 Chris Evans: Could you clarify something in the report? Paragraph 1.11 says: “By January 2019, only two CRCs were using the gateway, seven were still working towards introducing their own systems, and 12 CRCs had decided to retain HMPPS’s systems rather than introducing their own.” Could you clarify that? 

Michael Spurr: I think that is what I was trying to say—12 of them have decided not to put their own systems in place, but to use ours. That was an option for them. The reason for the gateway was to say, “You can take the case data that we have from the central system, but if you want to use it in a different way within your own system, as long as we have the information on the central system, you can do that.” Initially, everybody thought that they wanted to do that; 12 of them are simply using our national system. They have not invested in doing other things with that. 

Q75 Chair: Presumably they pay you a fee to use the national system—do they? 

Michael Spurr: I don’t think they pay a fee. We want everything on the national database, so— 

Q76 Chair: So it is cheaper for them to use the national system. 

Michael Spurr: Well, they haven’t had to develop their own system, so— 

Chair: Exactly, so it is a lot cheaper for them. That is presumably a driver. 

Q77 Chris Evans: If you are able to, and it is not commercially sensitive, could you tell us how many legal claims you have against you for delays and the impact of those delays? 

Sir Richard Heaton: I think we have settled, as part of the negotiations, so I do not know the detail. 

Michael Spurr: I think on the IT we have settled, but we can let you know. 

Chair: You can write to us. 

Q78 Chris Evans: How much was the cost? Would you be able to share that with the Committee? 

Chair: You can share it with us privately, if not publicly. We would like everything to be public. 

Sir Richard Heaton: I will do what I can in the meeting. I might have it here, but if not— 

Chair: That is a couple of things that we have asked you to write to us about. 

Q79 Chris Evans: I will just end with two last questions; I know that my colleague wants to come in. I want to talk about parent company guarantees. They froze out the voluntary sector, and did not protect the taxpayer. What have you learned from that? 

Sir Richard Heaton: You are right: it made it a difficult field to enter for the voluntary sector. Having said that, parent company guarantees serve a purpose. They mean that the taxpayer and the system are protected from the insolvency of a subsidiary. They are useful in some situations, and not in others. It is fairly standard Government contracting practice to seek one. The Government are not the only player that seeks guarantees of this sort. It is one of the obstacles to voluntary sector players being prime providers in this field, but not the only one. 

Q80 Chris Evans: Okay. Voluntary organisations obviously play a massive role in the justice system. How are you going to ensure in the future that they are involved in any procurement? 

Sir Richard Heaton: That is absolutely going to be part of the design for the next iteration of these services, when Ministers announce them. We would like there to be greater voluntary sector involvement in this field. 

Q81 Shabana Mahmood: Before we talk about the future of probation services and your re-procurement process, can we talk about Working Links? Why were the three Working Links CRCs not brought back into public ownership at the point at which it became obvious that the company was going to go into administration? 

Sir Richard Heaton: We were aware in advance that Working Links was in difficulty and we prepared a number of contingency plans. It would have been possible to bring them into public ownership. On a balance of risk and cost and operability, we decided that this outcome was the correct one in the interim. The work has been taken over by a small CRC, which is doing well, and persuaded us that it was well able to take the work on. As a pragmatic move, that seemed the right way to go for us. 

Q82 Shabana Mahmood: Are you confident that that decision will result in the best possible outcome for the taxpayer when we are picking up the tab further down the track? 

Sir Richard Heaton: By definition, it is a short-term outcome, because the contracts are now due to terminate earlier, but yes—of the various options available to us, it was the best outcome for the taxpayer. 

Q83 Shabana Mahmood: Aurelius is the German venture capital company that bought Working Links in June 2016. Can you tell us whether they are the purchasers’ guarantor for the Working Links contracts? Sorry—the parent guarantor. 

Sir Richard Heaton: No; the parent company guarantee in this situation remained with Working Links and Aurelius did not offer us an alternative parent guarantee. 

Q84 Shabana Mahmood: Will that risk transfer to the Ministry of Justice? 

Michael Spurr: Working Links are in administration. We are going through a process of administration. They hold the parent guarantee at the moment. We will have to work that through with the administrator. 

Sir Richard Heaton: We have reserved our rights under the parent guarantee vis-à-vis the defunct company. 

Q85 Shabana Mahmood: So we will have to see how the administration process unwinds. What is your assessment of the current state of probation services in Wales and the south-west, given the collapse of Working Links? 

Sir Richard Heaton: Michael might have a better operational view, but I think I would distinguish between Wales and the south-west. The southwest, as you will know from the inspector’s report, was not in a great state. Wales was in a slighter better state. We are confident that the new provider has got the bandwidth, resources and motivation to do well. 

Q86 Shabana Mahmood: What is the current operational assessment of the quality of the services in those two regions? 

Sir Richard Heaton: Poor, in Devon and Cornwall. Better in Wales. Do you have more detail than that, Michael? 

Michael Spurr: That’s it. Unacceptable provision, frankly, in the southwest. Wales is significantly better. Unacceptable, as evidenced by the inspection and by our own audits, which was why we stepped in, alongside the administration. The two went together. 

Q87 Chair: What about the continuity? I have a constituent who is trying to move from London to Wales. There have been a lot of hiccups, which I may write to you about. Do you think that is anything to do with the handover from Working Links to the new provider? 

Michael Spurr: Continuity for? 

Chair: Of case load. 

Michael Spurr: Oh, I see what you mean. 

Q88 Chair: If someone is in the system, are they guaranteed a seamless service? I only have one anecdote, but how should it be? 

Michael Spurr: I don’t think the operation was working—well, I know the operation wasn’t working well. Ms Flint asked before about staffing numbers. The staffing numbers are not sufficient to make that work properly in the south-west. 

Chair: In the south-west and Wales. 

Michael Spurr: Yes. That is one of the reasons that we needed to address that. That is something that we have said very directly that we need addressed. That will be addressed. I am sure that will have affected some of the transfers, but I don’t know the precise detail. It is less so in Wales, so I would have expected it be easier to have achieved that in Wales. 

Q89 Chair: But you are sure that the handover is being worked through. 

Michael Spurr: At the moment, we are very happy with the way that that has been going, but I am not underestimating how difficult that is going to be, given that that service provision in the south-west has been so poor. 

Q90 Chair: Did staff TUPE over? 

Michael Spurr: Yes. 

Sir Richard Heaton: If you have a constituent’s case that shows otherwise, please do let us know. 

Chair: I certainly will, if I need to. Back to Ms Mahmood. 

Q91 Shabana Mahmood: How confident are you that your contingency plans can handle the failure of bigger providers such as Interserve? 

Sir Richard Heaton: We are pretty confident that we have good contingency plans. 

Q92 Shabana Mahmood: Pretty confident? 

Chair: For the record, Ms Mahmood is looking sceptical. 

Shabana Mahmood: Can you try to bottom that out? 

Sir Richard Heaton: We have a large contractual exposure across every part of our business, and we have had to step in in all sorts of ways: after Carillion, for example, with the management of Birmingham prison, and with Working Links. So I think we have good contingency plans. 

Q93 Shabana Mahmood: Previous failures have given you some good experience to draw on, but given that no company can control more than 25% of the total market, what practically are you going to do if somebody else fails? 

Michael Spurr: As in this case, we have the option to step in directly, and we will step in— 

Q94 Chair: But that is now your only option. 

Michael Spurr: It depends on which provider we are talking about, doesn’t it? It is not the only option for all those providers. We have a range of options, which include, if we are able to do this, using other providers, and stepping in directly. 

Q95 Shabana Mahmood: Finally, on the employees of Working Links, what action have you taken in respect of pensions? 

Sir Richard Heaton: I assume the staff have been TUPE-ed over in the ordinary way, but I can write to you if there is a particular point on that. 

Q96 Shabana Mahmood: Yes, I think pension liabilities and what would happen were discussed previously, so if you could— 

Sir Richard Heaton: I will write to you on that. 

Q97 Chair: Of course, it depends on which pension scheme. There may be lots of issues. If you could write to us with what exactly is happening to staff who have been TUPE-ed over— 

Sir Richard Heaton: Yes, of course.

To be continued....