More radical ideas required: SMF response to Public Accounts Committee report into private contractors and public spending

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14 March 2014

More radical ideas required: SMF response to Public Accounts Committee report into private contractors and public spending

Following today's Public Accounts Committee report into private contractors and public spending, Social Market Foundation Deputy Director and author of a forthcoming SMF report on the use of private contractors in reoffender rehabilitation services, Nigel Keohane, sets out his thoughts on the need for transparency and honesty in contracting out public services.

"Today's Public Accounts Committee (PAC) report on contracting out public services comes at an important time with the commissioning process for rehabilitation services in full swing. As the report acknowledges, much needs to be done to boost the capability of commissioners in the government. But, beyond this, the Social Market Foundation believes that the government needs to be more radical.

First, the PAC report echoes the calls for open book accounting – a way of contractors showing commissioners, partners and the public what they are doing and where they are making their profits. This is a good initiative. Let’s make it compulsory. But, it’s not enough. Forthcoming research from the SMF illustrates the risks that smaller providers – especially charities – face when they are sub-contracted to a large private provider. Transparency only partially resolves this problem yet government is often unready to regulate to prevent charities facing risks they cannot control.

Second, the PAC is right to acknowledge that the Government should seek to contract out to smaller providers (both businesses and charities). These organisations have different expertise and are likely to innovate in different ways than larger providers. The lesson of G4S, Serco and Atos is also that we need diversity to ensure proper competition. How to get this diversity is the problem.

The report cites the burden of procurement with bidders required to provide 12 A4 boxes of information. But, the problem is not one simply of making it easier to bid. Larger providers will always be able to gain economies of scale to bring down their costs and thus are well-positioned to outbid smaller providers and charities.  The stumbling block here is that if the Government really wants diversity, then it will have to pay for it. This is what we need to be honest about. Perhaps we quite literally pay more cash, or more imaginatively we could under-write risk or by provide guarantees to smaller providers.

One option the SMF has put forward is to have a fund held in the Cabinet Office which could be drawn down by departments to subsidise the costs of commissioning services out to smaller providers. This collective approach might get also get round the dilemma that diversity matters across the whole market of public services as well as within specific programmes, but in contracting out a particular service an individual department does not have this wider perspective. So, yes it would cost more, but then past experience suggests it might be a cost worth paying."

The Social Market Foundation has a forthcoming research report Breaking Bad Habits: Reforming rehabilitation services which will explore the use of private providers and payment by results in reoffender rehabilitation.

Nigel Keohane, Deputy Director, is available to comment:
•    020 7227 4401 (SMF landline)
•    07906 778 516 (mobile)
•    nkeohane@smf.co.uk

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