Buying Quality Performance

The UK parliament’s Justice Select Committee has finally confirmed what we predicted in our blogs and advised the Committee as early as 2013. The so-called ‘rehabilitation revolution’, or contracting out of probation services, by the then Justice Secretary, Chris Grayling, has been a complete failure. There has been a reduction in quality of service, “disappointing” impact on re-offending, chronic morale amongst staff, and no involvement of third sector specialists. The Committee’s findings echo the Chief Inspector of Probation who revealed last December that up to 40% of offenders are now supervised by telephone, with calls every six weeks, rather than in person. However, the reasons for this failure are not as people assume, and this widespread misunderstanding will only harm future public services further.

Opponents have been quick to jump on this as further evidence of the failure of evil, big private sector providers and of privatisation in general. They are wrong. It is not the use of contracting that is to blame, but the way that the contracting was conceived and managed.

Giving evidence to the Committee in July 2013, I said: “………as the contracts are currently designed, this is not a rehabilitation revolution. You must be clear about that. This is about the outsourcing of probation services for the delivery of court orders at the cheapest possible price………. the Ministry has made it clear that it is looking for a cost saving of around 30% through this procurement.” (https://publications.parliament.uk/pa/cm201314/cmselect/cmjust/c94-i/c9401.htm)

Grayling was quick to promote his outsourcing of probation as provision of a “through the gate service designed to help prisoners resettle in their communities”. He said this would be “payment by results”, with the results being fewer instances of recidivism.

Indeed, there were few people working in and around probation before this ‘revolution’ who did not admit to waste and inefficiency in the system. As far as results go, nearly 45% of all adults are reconvicted within one year of release from prison.

Unfortunately, Grayling’s promotion of the new approach was misguided at best.

Outsourcing can be a way to introduce a stronger link between spend and delivery – a commercial rigour – to increase performance within a budgetary envelope. But when you compete on price, this actually shatters any such link. It goes against the logic of why you outsourced in the first place. It just comes down to who bids cheapest.

As I explained to the Committee in 2013: “The Ministry has made it clear that it is looking for a cost saving of around 30% through this procurement. If we take, for example, a typical probation area that is being outsourced in this way, they currently spend about £30 million on their services as defined by the court orders. The Ministry is looking for somebody to bid at around £20 million for delivery of those services – including the addition of the under-12-month supervision orders – still within the £20 million window. The organisation that is successful in securing the contract will be the one that bids cheapest. Whether they are then able to continue to deliver the service is a moot point.”

There is, it is true, an element of ‘payment by results’ in these contracts. Some of the money paid to the contractors is linked to reoffending numbers. But this only represents 20% of their potential contract value. 80% of their funding is paid as a ‘fee for service’ on a monthly basis.

The successful contractors had to bid cheaper than anyone else. Then pare back the service as close to the bone as possible (e.g. switching from face-to-face contact to telephone calls) in order to cover their basic running costs and (hopefully, they thought) derive a bit of profit, from this very cheap monthly service fee. This fee that had been arrived at with no consideration at all for what should have been the fundamental questions underpinning the commissioning process:

• What does good probation look like?
• What does this cost, when it is run efficiently and focused on performance?
• How do we attach that cost to service inputs and outcomes?

In my previous blog I described how I am assisting the Ministry of Labour & Social Affairs in Kabul to buy employment outcomes in precisely this way. We have built a shadow ‘costed operating model’. This helps us to fix the pricing and reinforce the link between cost and delivery, using the payments to drive performance not shackle it.

This is, of course, not the first time Grayling has aggressively applied price competition and destroyed services as a result. In the world of employment services, he pushed through a similar model. As a result, whereas over £1 billion a year was spent on outsourced assistance to long-term unemployed and other at-risk groups a decade ago. Now, post Grayling’s Work Programme, annual spend is only around £150 million. There simply is no support in place for hundreds of thousands of workless people. Because contractors were thrown into a competitive battle, where cost and delivery were disconnected, and they fought to reach the bottom.

Maybe we should not blame Grayling alone. It seems a widely held belief that outsourcing equals privatisation, which simply equals buying the cheapest thing possible. This is certainly the model that procurement professionals are most familiar with, and procurement all started with the purchase of products (like desks) where value-for-money is a much easier equation. Getting stuck in this view is a huge missed opportunity, and means the maintenance of inefficient services that fail people that need them.

The design of the commissioning process for public services has the power to transform their efficiency and their impact. But services like these are not products. You cannot buy a service in the same way you buy paperclips.