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Private Good, Public Bad

Author: Virginia Moffatt

This post was first published by Ekklesia on their website.

The prevailing fiction of our times is that the private sector is better at running things than the public sector. This has been the ideology we’ve lived under since Margaret Thatcher. And despite evidence to the contrary, politicians in Labour, Conservatives and the Liberal Democrats all seem wedded to it.

But what’s the truth of the matter?

The example of British Rail is a salutary one. Back in 1993 when it was taken out of public hands, the argument was that this would make it more efficient and accountable. However, the reverse appears to be true. Rather than providing transparency the system is riddled with ‘backstairs lobbying’ and "manipulation of the terms of public debate by well resourced private interest". Furthermore the complexities of managing the different franchises and the infrastructure of the network means railway services are now subsidised more heavily than they were under British Rail. Meanwhile a study by Corporate Watch suggests that privatised utilities cost the taxpayer more than public ones. No wonder public polling suggests nationalisation of utilities would be popular.

As a former local authority manager, I’ve seen first hand the problems that privatisation brings. I’m not a statist ideologue. I believe many services are better delivered on the ground by the voluntary sector, and I’ve come across good social care providers who work for profit. But, now we've reached a situation where big international companies such as G4S, and Capita can bid for essential human services, despite their poor reputations, I believe it's time to call a halt.

When I first started out as a contract manager in the early nineties, we worked with a range of providers. These included local authority run services, voluntary organisations with a strong local connection, national charities, and some private provision (usually run by small family businesses). Back then we were shifting from a grant culture to contracts. We tended to give long term contracts to organisations that had a track record in running services. They could continue to keep the service as long as they could demonstrate quality and value for money. When we had an idea or resources for a new project we would talk to our providers and give the work to the organisation who we judged had the capacity and skill to deliver. It wasn’t a perfect system, and certainly some local charities were very good at using political influence to push their case, but it enabled us to ensure continuity of service, and work with people who understood their local community.

By the early 2000’s things were beginning to look different. Changes in EU rules about procurement of contracts meant we were obliged to offer new opportunities under competitive tender. Suddenly, we were asking providers to apply for a job. By the time I arrived in Oxfordshire in 2006, tendering was being applied to organisations who had existing contracts. This required the development of new procurement systems and teams. The idea behind procurement is that by having a competitive tendering process the most effective provider wins. Whilst I think this is a valid argument if you are purchasing equipment and stationery, it is less effective when funding human services.

A procurement team costs money, but a procurement process costs even more. An opportunity has to be advertised which requires procurement and contract staff spending hours producing information about the services and devising how the procurement will work. When the advertisement is up, potential bidders are invited to ask questions which have to be painstakingly answered. The first stage is to fill in a questionnaire (a pre qualification questionnaire, a PQQ) which means provider agencies having to spend hours describing their qualities to the best of their abilities.

The PQQs then have to be evaluated by the tender team (who can be made up of procurement, contracts and frontline staff). Those that pass are invited to submit a more detailed bid which will undergo further analysis. The experience can take several months, tying up staff time in both the providers and the local authority. The costs can be considerable, yet they are rarely acknowledged as being part of the overall service budgets.

Neither does procurement always yield the best results. I’ve known successful organisations fail to be shortlisted because they filled the PQQ out wrong. Providers valued by service users and their families can lose a contract because the person presenting their case gave a poor showing. Whilst the constant drive to push down price means small local providers offering a good person centred service are often driven out by bigger less value driven organisations who are able to defray costs better.

Furthermore, the handover period when a provider loses a contract is fraught with difficulty, as the new organisation has to quickly learn how to run an often complex service. The first year of a contract can be a dangerous time with the risks of something going wrong increased if the winning bidder fails to put strong leadership and rigorous systems in place. Again, the financial implications of a failed service are rarely considered during procurement exercises, but the reality is that if the wrong provider is chosen, it takes an excessive amount of staff and management time to put things right. And even if things go well, a change of provider is an anxious and unsettling time for service users and carers.

Yet the fiction persists that the private sector is better. And the new Cameron government doesn’t seem to have any intention of moving from this position. The recently appointed Communities Secretary for Local Government, Greg Clark, worked for several years at Boston Consulting Group, a business consultancy firm with an interest in privatisation, which is suggestive of the direction of travel. Public sector budgets have been slashed by 30 per cent over the last five years, and there are further cuts to come. The argument will continue to be made that outsourcing services to the private sector is be the best way to manage those cuts, but it is a fallacious argument. Privatisation costs more than it saves, and results in private providers like MiHomecare dominating the market. Further cuts and privatisation will only make a bad situation worse.

Virginia Moffatt is Chief Operating Officer of Ekklesia. Before working for Ekklesia, she spent 30 years working in services for people with learning disabilities, most recently for Oxfordshire County Council. 

The publisher is The Centre for Welfare Reform.

Private Good, Public Bad © Virginia Moffatt 2015.

All Rights Reserved. No part of this paper may be reproduced in any form without permission from the publisher except for the quotation of brief passages in reviews.