Thursday, 4 July 2013

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.


  1. With 61 percent of the WP budget paid as attachment fees but these costs reducing to nil by the start of year four, A4E and others need lots of fingers in different pies.

  2. Another of the bigger issues with outsourcing is choice. Or rather the lack of it! If I don't like Tesco for example, no doubt even the MD of Tesco himself will tell me I'm at liberty to shop elsewhere whether it be Morrisons, Asda, Sainsbury's, Aldi, Lidl, Waitrose, my local Costcutters of nearest market.

    The world of outsourcing thinks differently of course! The only competition there could possibly be comes in the form of the bidding process. After that, it is a murky world of rewards for poor performance.

    Take the WP or its predecessors such as ND and FND. hat competition exists between the providers? Not that'd it make much difference quality wise, but could a client ask to go to another provider other than the one they have been allocated? Can a client ask to use another option such as a course at his local college rather than attend the WP? I think the answer to both of those is no. Also, just how many clients would CHOOSE to use the WP or its predecessors given the justifiably bad press they have received in many quarters and the well publicised bad experiences of many, many clients?

    Little wonder then that in a world devoid of choice and accountability, we have clients treated appallingly at times with a lax complaints procedure. The very threat of customers voting with their wallets and purses surely keeps most businesses on their toes. Unless we're in the outsourcing universe of course.

    " 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."

    PBR is part of the constant race to the bottom. The argument goes something like: If the W2W providers fail to hit their allocated targets, then they get paid less, which is less of a burden on the taxpayer. However, if these providers do miss their targets, then the taxpayer ends up paying more in the form of more JSA payments. Furthermore, if a provider receives less from the taxpayer due to poor results, then this means ever less monies spend on their clients. Little wonder some clients appointments are weeks or even months apart and that courses they have enquired about have been non-forthcoming due to a lack of resources!

  3. As far as I can see outsourcing is just an excuse to transfer enormous amounts of public money to private companies that do very little in return.

    Power is being transferred to private companies that are accountable not to voters, but to their shareholders. Like the banks, eventually, the day will come when they will be "to big to fail."

    Governments will come and go, but these large outsourcing companies will remain.

    Who will own the shares of these companies? Who will be sitting on the board of directors? Outsourcing is creating a parallel government that directly controls the lives of the people that it touches, but has no democratic accountability.

    We are already well on a road that ultimately leads to a dystopian nightmare.

  4. Maybe I have lost the plot? When the previous Programmes were cancelled the Providers were paid off,because the Government did not meet its contractual obligations,now the Providers are not meeting their Minimum goals and they are not being penalised..Only the Client is (the unemployed)and this is explained how?

    1. The point is that the taxpayer is also being penalised, having to pay for all this.

    2. Exactly. Unfortunately, if it's not explained to them that their money is being wasted, then they will probably just keep thinking that it's the unemployed people's fault, there for increasing the general dislike of the unemployed. It's not exactly a win-win situation for the unemployed, is it? Who knows, maybe one day people will wake up to the fact that their government is squandering millions/billions of their money on constantly failing programmes and the companies that run them. I for one would love to see what the government will say when a public enquiry is opened to find out why they continue to waste taxpayer's money on failing programmes. It won't be pretty, that much is certain. :/

      How will it all end?

  5. I just wish it would end. There are alternatives yet nobody pursues them despite people shouting about it as much as they can. It does seem that Government is a one track mind trapped by the vanity of it's bad choices, focussed only on 'saving face' and serving it's own dubious interests.

    But it's the suffering of the service users that people ultimately forget. And I am one - unemployed, been on the WP, been treated incredibly badly by many people both in work and on benefits (I'm not the only one). Yet despite that, vast amounts of money are sucked up and passed over to incompetent business types who then keep it when they fail, over and over again. Any attempt to complain or hold to account any bad conduct is simply an illusion that goes no where and achieves nothing. I hope the Welfare to Work contracts do fail. Even though the taxpayers (of which I was one and still am) will lose money, the service users will benefit from being left alone to decide for themselves how best to cope. Those who do need help will perhaps be able to return to the genuine charities and honest organisations that can provide appropriate support as money will be free to trickle back their way.

    I'm glad at least that this blog - and many others out there - are highlighting the problems for us all to see. After all, we can only fight lies by speaking truth and hoping people respond and learn to change their minds.

    1. For Years 3, 4 and 5 of the WP minimum performance levels are JSA 18-24 44 percent, JSA 25 plus 33 and ESA New Claimants 16.5 with attachment fees set to fall to nill. Something's gotta give...

  6. Fundamentally the rationale behind the Work programme is fatally flawed.
    Unemployment cannot be cured by attacking the unemployed.
    Unemployment can only be cured by attacking the cause of unemployment - the insufficient number proper paying jobs.
    The WP does the former but does nothing about the latter.
    In many ways this is not the fault of the WP but it is the fault of successive governments which have stuffed the mouths of the Providers with gold whilst the "stock" continue to be amazed at the utter futility of the approach.
    History will I feel deal with the politicians harshly. As for the providers? Well who can blame them for not wanting to derail their own private gravy train?
    End of today's rant.

  7. '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.'

    Which is why public sector work is being transfered to the private sector. The private sector in this country is finished; it cannot and has not been able to compete with the rest of the world. As a consequence, since the 1980's, more and more public sector work is being transfered to the private sector. This can only work if the private sector carries the intial investment, reinvests profits and is open to competition (as it should in a free-market capitalist economy.

    HOWEVER, the OPPOSITE is happening. The tax payer is STILL funding or part funding the intial investment(PFI's and Right To Buy are good examples) and subsidizing company investment and profits by rising bills (the energy companies are good examples). Factor in Working Tax Credit and in practise THE STATE is subsidizing the private sector. I have coined a phrase for this, SOCIALISM IN REVERSE: the practise whereby the state funds the private sector and wealth is transfered from THE POOR to the RICH.

    The recent proposed nuclear energy subsidy is perhaps the most onerous example. £10 BILLION of PUBLIC money will be used to build several nuclear power stations for the private secotr to run free of charge and under a monopoly. I.e they will be allowed to operate both as a public utility (free costs, no competition) AND a private utility (free to increase bills ad infinitum to subsidize shareholder dividends).

    1. It's corporate fascism.

      Franklin D. Roosevelt once warned that democracy will never be safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. If such a scenario arose, Roosevelt said, that would be the very definition of fascism.

      This is an interesting talk on the subject:

    2. That's the one - corporatism. I mean if I can see it why can't everybody else? I also remember something called 'organic conservatism' which was a 1930's facist-lite conservative movement. If I remember correctly I believe it advocated the restructing of the British economy and British society based on types of occupation. It was ridiculed at the time because of its similarities to Mussolini's corporate state. Perhaps, it is this model that the current Tory gov't are seeking to aspire to? Hopefully, the British people will catch on before it's too late.

  8. I have worked for A4e for just under a year in the Prison Education sector and the mantra that the private sector does it more efficiently and effectively may be true but its HOW they cut costs and how they get people to do more work - that is ultimately the problem.

    At present A4e are losing money in the Prison Education sector and they are worried - but they also respond rapidly with wizardry number crunching, cutting staff numbers and increasing income through offering money spinning courses.

    Morale is at rock bottom, and we all feel stressed to the hilt but know that a bad job is better than no job in the current climate. Having said that they took on a "below par" workforce and in many respects the changes for efficiency are welcomed................but again its the way they do it.

    Education should never be about profit, but it is when the exam boards offer courses worth so much - and A4e see numbers of clients and match the two, sometimes well and sometimes appallingly.

    They also see staff salaries and restructure to get rid of the highest paid (most experienced) and bring in younger more pliable cheaper models.

    In some cases this works - longevity does not mean effective or efficient - but neither does differing contracts and disparity in pay and sickness - make for an effective workforce.

    No one is willing to admit it has a good, a bad and an ugly side - but contracting is here to stay unless clients and staff keep mumbling and grumbling and eventually the idea may crumble to be replaced with nationalization once more and we start the whole cycle all over again - like fashion already does (flares, cords, kevin keegan perms, short shorts, and lava lamps).

    In 20, 30, 40 years - full circle or some Arnie Schwarzenegger film for real!!!!!!!!!!!

  9. The world of outsourcing thinks differently of course! The only competition there could possibly be comes in the form of the bidding process. After that, it is a murky world of rewards for poor performance.


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