Fact and fiction

The party conference season is always depressing, but this year it's frightening as well.  I've taken to avoiding the BBC's news and politics output altogether.  So what are the important issues which are not being talked about?  
Outsourcing (or privatisation - in the public mind they're the same thing) should be in the forefront.  It is in the clamour about the NHS.  As private companies move in to pick up contracts it's pointed out that i) many are American and ii) many MPs have financial interests in them.  But creeping privatisation is happening in lots of areas.  The academy chain AET has gone into an arrangement with accountants PriceWaterhouseCooper to outsource all its non-teaching staff.  It won't stop there.  
There's a great piece by Patrick Butler in the Guardian which shows that outsourcing is about driving down costs by cutting wages.  Around 5.4 million people now work in outsourced public services, and it's being driven, particularly in the "care" sector, by the cuts to local authority budgets.  That's how this government has achieved its aim, by pushing the responsibility back onto local councils and then claiming that it's their fault.
How is that veteran of outsourcing, the Work Programme, going?  Swimmingly if you believe the government.  But the Welfare News Service site did an excellent analysis of the figures showing just how badly it's letting down the unemployed.  A4e, of course, spun it frantically.  "A recent report by Europe Economics, an independent research company commissioned by the Employment Related Services Association, has also estimated that around 100,000 jobs for the long term unemployed would not have taken place without the programme and that £18 billion in value to the UK economy is likely to be generated by the Work Programme."  Neither of those figures bear examination.  
Let's hear some pearls of wisdom from Leo McKinstry of the Express: "Under Work And Pensions Secretary Iain Duncan Smith the Government has rooted out abuses, introduced tough sanctions, ensured that work pays more than the dole and tackled the housing benefit scandal where jobless claimants could live in luxurious accommodation courtesy of the taxpayer."  In any field except journalism and politics this would be regarded as symptomatic of delusional illness.
If you have thoughts on the conferences relevant to this blog, please comment.  (I don't promise to publish unless you stick to the rules, basically be relevant, literate and polite.)

The outsourcing scandal revealed

When it was revealed that G4S and Serco had been overcharging by millions on the offender tagging contracts we were assured by Chris Grayling that they would be barred from bidding for any more contracts until a thorough investigation had been carried out (including an investigation by the Serious Fraud Office).  But then, a few days after G4S were pronounced "cleared" (though not be the SFO)
they were included in the list of bidders for the probation contracts - so they must have been tendering while supposedly barred.  Well, it's now clear; they were never barred in the first place.  That's just one of the revelations to come out of the latest hearings of the Public Accounts Committee.  As the Guardian reported on Monday, the chair of the PAC, Margaret Hodge, was shocked.  The hearings continued today, and the shambles which outsourcing has become was laid bare.  Two of the top civil servants in the procurement area are fairly new in the job, and have bags of experience.  They were interviewed today, and said they had found that the people doing the work didn't have the skills, experience or competence for the job.  There was no contract management.  Applications to vary the contracts were numerous, and with one particular contract there had been so many that no one could now remember what the original contract specified.  Basically (although they didn't put it like this) the companies have been running rings round the government.
There is obviously a lot more to come out about specific contracts.  Right at the end Margaret Hodge reduced the G4S chap to quivering silence when she demanded to know if it was true that in the probation contracts it was specified that if the contract was terminated by either side before it was completed, the company would get the full amount of the contract.  Apparently it is true - and she didn't like it.
The last Labour government started this outsourcing bonanza.  When the coalition got in they didn't stop to find out whether the competence was there to do it; they just went ahead and outsourced everything that hadn't already been flogged off.  And we have been paying the price.

News round-up

With so much going on in the world the media, particularly the BBC, can happily ignore the issues which concern the poorest in Britain.  They managed - just - to report the fact that the government lost a vote on the bedroom tax.  It was a private member's bill, introduced by a Lib Dem (!) to water down the current rules by exempting disabled people who need the extra room or have adapted homes, as well as those who can't be found a smaller home to move to.  Labour backed it and the government lost by 306 votes to 231.  It will now go to committee stage and is unlikely to get through its third reading and into law.  But it's a start.  Unfortunately the BBC managed to spread misinformation.  The website piece says that the original changes "were designed to ensure social tenants get the same treatment as private tenants, who do not get any rent support".  I don't know what he means by "rent support", but this suggests that private tenants don't get housing benefit, which is untrue.  The piece also quotes Iain Duncan Smith as claiming that the changes would cost the Treasury £1 billion, a figure which is as accurate as all IDS's numbers.  

Then we read about the "attitude to work" assessments which the gormless Esther McVey is now going to impose on the unemployed.  It's an idea borrowed from Ingeus, apparently.  You can read the Daily Mail version if you really want to, or the less hysterical version in the Independent.  Although she's presenting it as voluntary, and as a way of not putting people on courses they don't need, there are obviously fears that it will be another way of catching people out and sanctioning them.

On the outsourcing front, there was an interesting article in the Independent about the race to, in effect, privatise the probation service.  It suggests that there are 5 companies involved - Capita, Sodexo, Amey, Interserve and Carillion - and that they would be well advised to have nothing to do with it.  They are very unlikely to make a profit.

Finally, please read the Guardian piece by John Lanchester about poverty and inequality.

Down the drain

With all that's going on, who is taking any notice of outsourcing?  Even the galloping privatisation of the NHS receives no attention from the mainstream media.  It's down to the "left-wing" papers to bring the occasional bit of news to our attention, but unless you read Polly Toynbee's excellent article in the Guardian back in May you would have little idea that anything significant was happening.
We don't know the situation with A4e, but the chances are that its finances haven't improved much, if at all, since March 2013, the date of the last published accounts.  And they're not the only ones in trouble.  Both Serco and G4S have gone into the red, and the publicity is all negative.  Quite right too; think of those electronic tagging contracts which both companies used to rake in money they weren't entitled to.  They've had to pay it back, but there have been no prosecutions.  Why?  For two reasons, I think.  One, that a court case would have exposed the fact that it was government processes which allowed them to overcharge by millions.  And two, that they have become indispensable to government.
Let's go back a bit, to the heyday of the last government when outsourcing became all the rage.  Some companies, like A4e, chose to concentrate on particular areas of business, in their case where the commodity was people.  Others, like Capita, specialised in "back-office" functions, focussing on IT systems and processes.  Serco and G4S both started life as security firms, and cashed in on the bonanza that was outsourcing in that field.  But they soon branched out into anything that was going.  They learned that there are a number of rules to the game:

1. Bid for everything.  That means employing a large number of bid-writers who know exactly how to write the tender.
2. Bid low.  Offer to do the job for so little that not only can you not make a profit but you can't fulfil the contract either.  It doesn't matter.  Just get the contract.
3. Renegotiate.  Having embarked on the job, announce that you need more money to complete it.

So Serco in particular have scooped up contracts for everything from prisons to council call-centres, trains to welfare-to-work, electronic tagging to forensic science laboratories.  How can they possibly know enough about any of these specialist areas?  Simple.  They take over a service that's already being run by someone else and employ their staff (not all of them, of course, got to keep the costs down).
But now they are coming unstuck.  Serco announced a little while ago that it was pulling out of the healthcare market altogether.  This comes after it made a mess of the GP out-of-hours contract in Cornwall and had to hand it back; and now we learn, from the Independent, that it has been overcharging the NHS by millions for pathology services through a firm it set up in partnership with two London hospitals.
But healthcare is just one area.  There are plenty of companies ready to step into that market.  Meanwhile Serco, along with G4S, Capita and the others move on to the next contract.  Sometimes they don't even have to go through the tedious bidding process; contracts are just handed to them.  Often now the whole outsourcing procedure is tailored to the demands of these few companies, making the idea of competitive tendering a nonsense.
If some companies go under, others will step in.  The competition comes now not from UK firms but from overseas companies like Atos, who've discovered just how easy it is here if you know the rules.  And we, who pay for it all, can do nothing about it; we can't even know what's happening because of "commercial confidentiality".  All we know is that it's money down the drain.

The boom in outsourcing

£88 billion has been spent on outsourcing in the UK since 2010.  That's nearly double what was spent in the last four years of the previous government, and the public sector is outsourcing at twice the rate of the private sector.  The big winners have been Capita and the usual suspects, but little of this boom seems to have touched A4e.
The project has enable the government to claim spurious private-sector job creation, as workers are switched from one to the other, with fewer jobs remaining at the end of it.  It also enables Cameron to claim that he is fulfilling his pledge to "release the grip of state control", though this begs the question of exactly who is in control.  Time and again we see how poor the procurement process is; how promises made on tender documents are pure fiction, but there is no come-back for the taxpayer.  There's an excellent analysis of the Work Programme figures in the New Statesman.  The providers are spending nothing like the amount per client that they promised, yet still they get their incentive bonus.
There is evidence that some services outsourced by local authorities are being brought back in house, and we've seen that happen in the past.  But there comes a point where there's no "in house" left; no council or government structure to administer the service.  It was a creeping privatisation under Labour.  It's galloping under this government, with little notice being taken by commentators of where we're going.
For a little light relief, we're told that a cabinet reshuffle is on the cards for next Monday.  It's suggested in the Telegraph that there are rumours of a straight job swap between Iain Duncan Smith and the Defence Secretary Philip Hammond.  The mind boggles.
 

Lessons in outsourcing and bias

The last few days have seen a graphic example of the perils of outsourcing.  As the NHS is gradually auctioned off, one of the pieces up for grabs was the GP out-of-hours contracts.  Serco got the job in Cornwall, and were recently slammed for providing a substandard service.  Next came the 111 helpline.  The bidders had to work on assumptions about call volumes and length, since they were going to be paid per call.  NHS Direct, which won a lot of the contracts, has given one back shortly after starting it, and the rest before even starting.  The assumptions were wrong, and they can't make them viable.  For a minor player like NHS Direct, this is terminal.  They can't exist while making big losses.  But the major players can carry on regardless.
The journalist John Harris wrote a long article in the Guardian on Monday about Serco in particular and outsourcing in general.  He's got all the main points, and writes clearly and passionately.  But he misses one serious issue.  Contracts handed out by one government run for a lot longer than the government itself.  An incoming government in 2015 cannot cancel existing contracts except at immense cost.  So our fragile notion of democracy is further undermined.  We can get no further, because the politicians on all sides are not going to back away from outsourcing.  More local councils are looking at hiving off many of their services.  Government will flog off anything it can.  There are vast amounts of money to be made, and that's all that matters.

There was a hilarious article in the Telegraph yesterday.  Back in November 2011 the BBC's John Humphrys presented a radio programme called The Future of the Welfare State.  It was a personal view, from his Welsh home town.  But there were complaints that it was not based on evidence, and was politically biassed.  The BBC Trust has just ruled that it failed to back the views presented with figures, and breached the rules on impartiality and accuracy.  Cue outrage from Iain Duncan Smith, who obviously loved the original programme, and sees the Trust's verdict as typical left-wing bias.  Ironically, he felt the same about Humphrys interview of him about the benefits cap recently; and he professes himself "staggered" about the way the BBC reported the High Court's judgement on the bedroom tax yesterday.  Yes, IDS is ridiculous.  But he's also very dangerous.  The only acceptable stance, as far as he's concerned, is for the BBC to parrot the government's line uncritically.  Yet another chip out of the structure of democracy.

As I was saying ......

Last week I speculated about the future of outsourcing, and pointed out some of its perils.  Now comes vindication with the story of G4S and Serco having overcharged the government massively on their contracts to tag offenders.  Because G4S is apparently not co-operating fully with the government's investigation, Chris Grayling is calling in the cops.  With new contracts in the pipeline, Serco have said they won't bid for them - but Capita plans to do so.  Unless a foreign company throws its hat in the ring, that's it.  There are no other companies in a position to bid.
We learned today that, between them, Serco and G4S get £1.5 billion a year from the may contracts like this that they have.  And in total outsourcing is worth more than £80 billion a year.  That's our money.  Some are now putting the blame for messes like the tagging contracts on the poor skills of those civil servants who are supposed to manage and monitor them.  Well, maybe, but that's inevitable.  They are hugely outgunned by the companies.

The future of outsourcing: can A4e survive?

Many people may have wondered how the dismal failure of the Work Programme to achieve its targets for the second year in a row has been hailed as a great success by the government which is paying for it (with our money).  But in fact the lies have shown the flaw at the heart of outsourcing.
Public sector bad, private sector good: that's one of the basic tenets of a free market system.  The private sector, with profit as its driver, will always be more efficient and innovative than the public sector.  Evidence for this assumption is hard to come by.  The real rationale is actually much closer to what Thatcher believed - that an industry or service should always be making money for someone.  The last Conservative government privatised everything for which the public paid directly; transport, for instance, and the utilities, most of which are now owned by foreign companies.  The Blair government followed by outsourcing those services which were paid for out of the public purse, whether locally or nationally.  In theory it makes sense, at least initially. You don't have to have an army of staff, with all the attendant costs and hassle.  You specify what you want and contract with the cheapest company to provide it.  If they don't deliver, you don't pay.
When this bonanza started, A4e were well placed to benefit.  But in a few short years the problems with the model started to appear.  In their chosen sector the company was soon scooping up contracts, to the bemusement of their competitors.  Was A4e simply undercutting its rivals?  Or did they have some sort of favoured status with government?  In other sectors, similar things were happening with companies like Capita, G4S and Serco.  It costs a lot of money to put a bid together; if a company can't see a possibility of ever getting a contract, it will cease to compete.  The success of the big players meant the demise of competitors.  The supposed free market was rapidly becoming an illusion.  When the government recently announced that it was to outsource most of the functions of the Probation Service, everyone assumed that the only bidders would be G4S and Serco.  All the outsourcing companies left standing have diversified into fields in which they have no previous experience, including welfare-to-work, where they have been joined by foreign companies.  A4e is no longer the top player.
The targets written into the contracts, and promised by the private companies, became notional at best.  The strange procurement process meant that previous performance couldn't be taken into account, so companies could fail and fail again, but still get new contracts.  There was no risk.  A good example of this was G4S's incompetence over the Olympics security contracts.  Their reputation took a temporary knock, and their profits stumbled, but it did no lasting damage.  Fortunately, on that occasion there were the police and the army to step in.  The G4S event was also an example of how dangerous the private sector practices can be. The company had to recruit a lot of temporary staff, and did so in good time; but they didn't want to pay them until they absolutely had to, and so by the time they called in their recruits many of them had made other plans and weren't available.
Occasionally a contract would prove to be such a bad deal for the company (usually because it had made a bad bet) that it had to cut its losses and give up the contract.  A4e did that with a number of prison education contracts, after badly miscalculating the costs and incurring big losses.  More recently we've seen NHS Direct pull out of two of its 11 medical helpline contracts because they are "financially unsustainable".  Other companies must step in and pick up the pieces.  But what happens when there are no other companies?  When you have closed down the public sector departments and got rid of the staff, you can't bring a service back in-house except at enormous expense.
The power should lie with those commissioning the services; with government departments or local authorities.  But as the number of players shrinks, the power shifts.  The design of contracts is negotiated with the providers, who have the upper hand, as we saw with the Work Programme.  We've even seen A4e being paid to tell government how to design contracts!
The answer, from this government, is Payment by Results.  But that has simply made matters worse.  It automatically limits the numbers of companies which can bid to the largest and most financially well-endowed; those able to sustain a period without any profits.  From the outset, it wasn't quite what it was supposed to be.  An upfront "attachment fee" was negotiated, which kept the companies ticking over without any results whatever.  However, PbR satisfies the free marketeers, who disregard the fact that if a service is not being delivered, it's the service users who suffer.
It is very much in the interests of government that outsourcing should succeed.  They don't want to have to admit that they got the whole process wrong and have spent our money to no good purpose.  That was what made Emma Harrison such an embarrassment when it was revealed just how much money she had pocketed in profits.  She had to go.  And it's why the Work Programme data has been so misrepresented.  So the private companies and the government have a mutual interest in pretending that black is white, if necessary.  It's also why the companies employ people who have a direct line to government (think Blunkett and Olliff-Cooper at A4e).
A4e's last published accounts showed their business shrinking, and perhaps struggling.  The accounts for the year to March 2013 won't be published until the end of the year.  Will it survive?  Outsourcing isn't going away, so much will depend on whether the company can adapt to the changing environment.

A lesson from Bradford

This is not about A4e. But it's a story which shows the flaws in the privatisation of public services.

In 2001 the government forced Bradford council to outsource its education services, all of them, to a private company. The 10-year contract went to Serco. The council leader, asked why Serco, a company which had no experience in education, said that they got through the procurement process as the best option on the basis of the promises they made; they would hire the required expertise. Serco said that they would improve education in Bradford, and would be paid bonuses on the only measure which the government saw as relevant, the number of GCSE passes. Those passes went down, with teachers complaining that they were under continual pressure to improve GCSE results at the expense of everything else. Serco tried to renegotiate the contract when it was clear that they were not going to achieve the promised results. Ten years on, the council is taking education back in-house, to no one's regret. Serco say they haven't made a penny from the contract, and insist that they have improved primary education in the city.

There are stark lessons here.

• Large private companies are good at getting contracts in all sorts of areas where they have no experience, because they employ bid writers to make the right promises, and are willing to hire the people with the relevant expertise. But all too often those promises are not fulfilled.
• Contracts have to contain some measure of success on which to base payments to the company; outcomes, in other words. Focussing on these outcomes can do great damage to the overall service.
• Once tied into a contract, a local authority can do little or nothing to save a service from going down the tubes until the contract period is up.

Bradford has learned the same lesson that Middlesborough learned when it outsourced its social care direct payments to A4e. This government, however, has learned nothing.