Buying Quality Performance

We are delighted to present a guest blog from Sam Sims of the Institute for Government, co-author of their latest report on public service markets and commissioning. The report cites a number of apparent market failures and makes urgent recommendations for if, when and how public services should be taken to market and managed once there.

Market Stewardship: how government must change its approach to public service markets

The Open Public Services agenda is making private sector and charities the new ‘default’ providers of public services. It is an ambitious reform agenda, aiming to transform the way in which public services are delivered in the space of a parliament, with major changes underway in health, probation, employment services and education, amongst others.

New Institute for Government research however, finds that the pace of reform is causing its own problems. Parts of the criminal justice system ground to a halt recently as the company providing court translation services struggled to provide enough linguists. In Leicestershire good schools face the threat of closure because of the unintended consequences of academy age range changes. In the Work Programme some job seekers are receiving little or no help because the tight margins on which providers are working mean they focus resources on the easier to help.

What ties together the examples cited above is that, in the rush to develop public service markets, avoidable errors have been made. The pace of reform that the government has achieved is genuinely impressive but when service quality suffers, with real consequences for pupils, parents and job seekers, this runs the risks undermining the wider reform agenda.

Our research finds that as well as creating a new default for service providers, Open Public Services require a new set of defaults for the way in which government works. We call that new role Market Stewardship and our report, published last week, demonstrates that the change required inside government is just as radical as the changes in the way that services are being delivered on the ground.

The tools, frameworks and recommendations which we have developed through our research can help government get the best from Open Public Services. Our When to Contract framework (p17) helps policymakers identify and mitigate risks of using market mechanisms to deliver services, based on the characteristics of the service in question e.g., are there high switching costs for users, are service outcomes hard to attribute? The ten questions included in our framework help policymakers think systematically about how to design markets for particular services and, thoughtfully applied, could well have prevented the problems with court translation services.

When government is delivering services through third parties, specific reforms will often have unintended consequences as providers respond to the new incentives. We recommend government take a much more open approach to market design, working with providers through scenario planning exercises and simulations to better understand the effects of reforms. Again, thoughtful use of these tools could have prevented the problems with academy schools in Leicestershire and the problems with parking in the Work Programme.

Given the importance of these services, Government should have a ‘competition impact assessment’ conducted, perhaps by the OfT, before implementing outsourcing programmes worth more than £100million. We also recommend a big increase in transparency once contracts have been awarded, particularly around how much funding particular providers are receiving and how they are performing against contractual obligations. This is essential, both for sustaining public trust in these markets and in holding government to account for how they award contracts.

If the government is going to harness the innovative potential of Open Public Services, and avoid further mistakes, which have the potential to undermine the whole agenda, it must be more transparent, more adaptive and experimental, and invest in the appropriate skills in Whitehall. More broadly, government needs to reconceive its role as constantly monitoring the performance of these markets and developing and trialling new ‘rules of the game’ in order to steer the market in the desired direction. Taken together, we call this approach Market Stewardship and if Open Public Services are to become the norm, then government must also adopt this as its new default approach.

Making public service markets work: Professionalising government’s approach to commissioning and market stewardship is an in-depth study of four public services markets – the Work Programme, Care for Older People, Schools and Probation – and draws on over 80 interviews with senior figures involved in commissioning, designing and providing public services.