BBC File on Four “Public, Private and Profitable” – another attack on public procurement

Oh dear, oh dear. More pressure piled on public sector procurement. The Radio Four File on Four programme last week looked at how government outsourcing contracts have been let. They started with the Ministry of Justice translation contract (see our piece yesterday), which does seem to have showed some commercial naivety in the Ministry of Justice (MoJ). That was both through their “big bang” launch approach, and in their assumption that the Prime Contractor could drive down prices from the independent translators without serious pushback. An analysis of power in the  supply chain (cf. Professor Andrew Cox) might have helped.

Back to the programme - Tom Gash at the Institute of Government says that civil servants or Ministers  “want to get a problem off their hands” and are therefore tempted to jump into contracts with suppliers who claim to be able to solve the problem.  Tim Banfield of the National Audit Office points out that if you outsource, you can “claim the saving as soon as you sign the deal”.  Problems in the future may appear, “but the individual who did the deal may have moved on”. Very true...

Even the basic outsourcing areas come under question. Colchester Hospital have decided to take basic cleaning services back from a wider Carillion facilities management contract – they contract directly with Sunlight, who were Carillion’s sub-contract, but dealing directly has led to a saving of £100K a year.  The hospital also discovered it was cheaper for them to lease vehicles than Carillion. There was then a rather strange example of negotiating with Carillion on a new cleaning requirement – it sounded to me like a poorly negotiated initial contract rather than any fundamental issue with outsourcing .

We then move onto local authorities where it is suggested that we’re seeing a move to insourcing. Not sure how true that is in the greater scheme of things, but the Association of Public Sector Excellence  claims there is evidence that value for money is better where services are provided in house.

Tom Gash points out that direct comparison between in house and external provision of services has rarely been made. It’s difficult to do, he says, because it is just really hard to capture all the actual costs accurately. But NAO are now apparently doing some fundamental analysis here – still work in progress, but at the moment there’s no evidence clearly in either direction, according to Banfield.

The BBC then looks at the contracts for the electronic monitoring of offenders – tagging as it is generally called. The MoJ has already spent the best part of £1 billion on this service. According to the BBC, the current tagging system is not the latest available. How good a deal is the MoJ getting out of the current deal? Policy Exchange have been trying to work this out. They can’t get the numbers very easily from Ministry of Justice. But they’ve compared with costs in Florida, and got to a price of £8.29 per monitored day. But the UK is paying 60% more than that!

Two companies who provide the tagging insist they are giving a good deal. One is Serco - Serco Geographic is a subsidiary of Serco and provides the tagging products. It reports into Serco Monitoring, another subsidiary.   Operating profits in Geographic have increased over the last few years, from 54% to 80% of turnover!  Hugely profitable, but Serco say that “Serco Geographic don’t deal directly with the Ministry and their technology is only a small part of the total costs of the deal”. However, the suggestion is that Serco Monitoring profits look lower –  better to present to the customer – but they pay a lot to Serco Geographic, and the impressive profit is made through that firm.

MoJ are now negotiating new contracts – and they’re going for a single national provider for monitoring. Sensible?

Margaret Hodge, the Labour Party MP who chairs the Public Accounts Committee,  says that “too much is hidden behind commercial confidentiality”. We should be able to follow the taxpayers’ pound and get more information and transparency from suppliers. (I agree, we’ve said that before, but it is worth pointing out in the interests of balance that this government has done more on transparency in the last two years than Labour did in the previous ten).

It’s tough being in public sector procurement at the moment.....!

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Voices (4)

  1. Peter Smith:

    Thanks for pointing out the mistakes / typos – writing 1500 words a day often on current events and without a full time editor, the odd error does creep in I’m afraid! It wasn’t the BBC using tagging, you’re quite right (now corrected in the article)
    Interestingly, Serco’s overall margins at plc level are still well below those of Capita. But I may follow your suggestion and get those particular accounts.
    On the translation side, I do try and be fair to procurement people, being one myself and understanding the pressure they’re under from their Minsters, senior budget holders etc. But I do think there was a lack of understanding of the market shown in the strategy for the language services contract, and too much focus on apparent “cost savings” rather than quality and service factors. (My wife suffered some years ago from a similar experience, in a different market but again where procurement folk didn’t understand the market dynamics or the value that real experts could bring). And I do hope matters improve for you personally.
    Thanks for your comment as well.

  2. Cicero:

    First of all I presume the writer of this article meant to say ‘How good a deal is the MoJ (not the ‘BBC’) getting out of the current deal?’ Or did you mean to imply that the BBC themselves require an on-going supply of tagging devices from the MoJ? For which employees may I ask?

    Also the name of the company you refer to is not ‘Serco Geographic’ but ‘Serco Geografix’. The web contains some fascinating detail about Serco Geografix including the amount of dividends it paid last year, all of which went presumably to its single shareholder, called (you’ve guessed it) Serco Ltd. Indeed Serco Geografix’s ‘gross profits’ pale in comparison to its dividends. Also obtainable is its ‘book value’ and ‘cash’ graphs which look interesting to the untrained eye. The company’s latest accounts are available via the web. For £4.99 it’s a must as a stocking-filler. You can also find online the company’s (estimated) number of employees and the amount it spends on salaries.

    It would be nice to know how much Serco Geografix charge Serco Monitoring per tagging unit (tag, telephone, hardware in general). Presumably these units can be pretty much recycled. As one offender or bailee comes off the tag, so another one goes on. The cost to Serco Geografix of such recycling (maintenance, installation, removal) would be presumably quite low. So wouldn’t the cost of supply reflect this? If units are being recycled, there does not seem much need for further ‘manufacture’ (not for the immediate internal market anyway). Procurement aficionados like to bandy the word ‘innovation’ around but I cannot see much incentive here.

    As a professional interpreter my career has been decimated by a bungled procurement exercise. I listened to the government in the 70’s and 80’s when it encouraged us all to learn languages. I am British born & bred. It took me years to perfect the language and then hone it in the service of the MoJ. Now a career that was professionalised by the government has been deprofessionalised. What next? Are they going to turf solicitors out of court in favour of Citizens Advice Bureau personnel (no reflection on them is intended)? The upside to living off scraps is that I have time to have a long hard look at procurement and its intricacies. I encourage everyone to spend £4.99 this Christmas.

  3. David Atkinson:

    Further tales of woe relating to outsourcing that only reinforce my prejudice against the practice.

    I was always taught at purchasing school that you never outsource (1) processes that are core to the business; that have a direct impact on the customer/citizen experience and (2) you never outsource a problem – it’ll just come back and bite you on the bum.

    Time after time we’re seeing outsourcing deals done at the behest of senior directors or equally-senior government officials where these VIPs already know the answer and they leave it to their minions to implement their whims. Push-back or challenge isn’t permitted; just get the deal done and we can declare the ‘savings’ (*LOL*).

    Furthermore, these organisations (wilfully?) overlook the complexities of managing these outsourcing contracts throughout the lives of the deals. Woefully inadequate governance arrangements are put in place, often assuming if there’s a ‘strategic’ problem, a senior exec will have a conversation with another senior exec. If it’s an ‘operational’ problem then they call it ‘teething problems’ and leave it to those same minions to sort out.

    It seems to me that most of these outsourcing deals have more to do with following ‘me-too’ practices than being based on sound business cases. It’s lazy and irresponsible because these pension-jockeys are never around when their organisations are deep into implementation issues.

    Until such time that organisations intent on outsourcing man-up with the appropriate quality and number of commercial and permanent relationship management staff, these stories will undoubtedly continue. When it comes to the public purse, every outsourcing deal should have named within it an accountable executive/permanent secretary who either remains accountable for the success of the contract for five years, or signs-up to be publicly named and shamed if it fails to meet expectations.

    I was learning about this stuff twenty years ago. As far as I can tell, these people responsible for these outsourcing debacles, appear to have gone to the school of fag-packet strategic planning.

    It makes my blood boil, etc……

  4. Dave Orr:

    How can you outsource something when you don’t know whether it is cheaper than the current service or not?

    “Tom Gash points out that direct comparison between in house and external provision of services has rarely been made. It’s difficult to do, he says, because it is just really hard to capture all the actual costs accurately.”

    It is absurd that Local Authorities and other contract letters don’t know if savings will really be made.

    Or do you simply belive every headline Power Point slide with a savings number from the contractor without any serious Business Case to underpin the claims made (as in Cornwall with BT recently).

    And then you need to add in costs over the contract lifecycle e.g. contract letting costs; changes and additions; loss of flexibility; loss of control etc.

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