Buying a horse-drawn cart for the West Coast Main Line

It was a brave decision to terminate the franchising of the West Coast Main Line and is indicative of the integrity of our civil service. It is wrong to heap responsibility on the heads of three officials (now suspended from the Department for Transport), who were probably following, with utmost professionalism, a clear process. This debacle is actually the result of fundamental flaws in the understanding of outsourcing that is prevalent across Whitehall.

There are examples of this in the commissioning/procurement of contracts by virtually every government department. From the ‘Jubilee Jobseekers’ (see separate blog) to the lack of G4S security guards at the Olympics.  From the failed NHS IT programme to the grounded Chinook helicopters.

The Work Programme will fail to deliver the required economic impact, because, just like in the West Coast Main Line franchising, the contracts were based on hopelessly optimistic forecasts and the contractors said they could deliver at below viable cost price. The officials who evaluated the Work Programme tenders and awarded the contracts followed the required process to the letter. It was the principles behind that process that were flawed.

When Lord Freud was preparing the ground for the Work Programme, he said that it was not the role of the Department for Work and Pensions to decide a reasonable price for these services. That should be left to the market, which would, through the competitive process, settle on the sharpest price.

There are two fundamental flaws in this approach:

1)   The marketplace is full of buyers and sellers.

These are people and therefore prone to error. They will also manipulate things to their own ends. In fact, the market drives them to do so, as they desperately defend their market position including pursuing greater market share.

Would-be contractors over-promise. They do so sometimes inadvertently, optimistically or naively, believing perhaps in the power of their ‘continuous improvement cycle’ or the mythical ability of their teams constantly to innovate. They may be led to over-promise by optimistic modeling provided by the commissioner. Or they may do so on purpose, knowing that it is undeliverable. In some cases, particularly among the very biggest contractors, it is part of their strategy to bid leanly and then renegotiate later – the commissioner will be forced to pay more or let the service fail and go through a costly retendering exercise.

In procuring a service, the commissioner must bring some commercial-operational nous. They must be clear what it is they are wanting to buy and roughly how much that costs. If someone is offering to do it for half the asking price, their evidence must be tested rigorously. Having ‘learning contracts’ with open-book accounting can assist this process, with prices reviewed during the contract life.

2) In the procurement of public services, the lowest unit price is not always the cheapest.

There are times when there is an obvious and easily tracked greater cost saving resulting from higher investment. For example, if I say I can get someone who is unemployed into a job for £1,000, but only manage to achieve this for 25% of my jobseekers, this is ultimately more expensive for the taxpayer than giving me £5,000 per job and me delivering 50% into work. Because the 25% I don’t help, go on to cost you years more in benefits and in healthcare costs and in justice services. Similarly, investment in an ‘expensive’ early intervention to prevent a child going into care, is put into vivid perspective when compared with the £100,000 annual cost of that care. Poor schooling today, means a lower-skilled, less productive and less socially-cohesive workforce tomorrow. Cheap prison warehouses today, mean higher recidivism, higher crime rates and a more expensive justice system tomorrow.

Public service delivery is not just about what happens at the point of delivery but often has a place in the wider public context. For example, if local people are employed to deliver local services, such as refuse collection, this is an investment in local wellbeing – the employment is putting income into the locality, which will be spent in part in that locality, and the employed residents will have better health and greater self-respect, with more positive participation in society. Then a contractor will come along and say they can deliver this service cheaper, deriving economies of scale from delivery across multiple areas. They will also employ staff on the lowest possible salary and have limited opportunities for training and development. Is theirs really a lower price, when the cost and the benefit of the ripples of that public service delivery are fully considered?

It is a straightforward process to include wider social impact in the evaluation of tenders. It is well within EU procurement law to do so. This might encompass evidence of: reasonable terms and conditions, with a living wage and strong pension provision; local community links and use of local suppliers; initiatives to engage with unemployed people; links with local schools and colleges to develop vocational training opportunities; concrete steps to deliver equality within the workforce, by gender, ethnicity and dis/ability; and ongoing staff development to enhance progression.

I suppose the question is whether the courage that called a stop to the West Coast Main Line franchising is strong enough to go further. It appears to require political vision and will to buy real quality at a realistic price – with procurement processes then aligned behind this different principle.

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