Public sector outsourcing: finally, an unfairness we can do something about
Shareholders and CEOs are benefiting from the outsourcing boom. But done differently, society could look much fairer
Illustration by Matt Kenyon
'Public sector commissioning": I can't think of a phrase that conveys something so important and yet sounds so soporific. The worst thing about it is that, the minute you stop being bored, you will immediately become angry. It's like Britain's Got Talent.
At the weekend the FT reported that outsourcing was booming, with a surge in contracts not seen since the 1980s relating to prisons, police forces, defence and health. We knew this was coming, of course – the first wave of police force privatisation was leaked to the Guardian in March. Last November, the first tender documents went out for nine prisons (Birmingham went to private hands in April).
What was the health and social care bill, if not an invitation to private companies to bid for contracts? The FT says this new tranche of work will be worth £4bn; but even though this is certainly a surge, it is a drop in the ocean of the public sector as a whole which, in 2009-10, spent £236bn on goods and services. It's enough that, if it were spent wisely, on companies with some basic principles regarding, say, the pay differential between the top and the bottom, society would look very different. At the moment, it is not being spent wisely.
Here's what goes wrong: first, we're often dealing with a unique service. The police, for instance, which this paper reports today will soon be run by G4S. What other business of the market could be held equivalent to a police force? When it's never been privatised before, it's hard to lodge an effective opposition, beyond "I just don't like outsourcing".
But just as it's hard for us to launch an opposition, it's hard for local authorities to commission. Who do they know who has experience of taking over a police force? Nobody. What kind of irresponsible idiot would hire someone with no experience? So the way the tender document is designed is that only people who can prove experience of dealing with huge budgets need apply.
Indeed, only big firms could afford the cash it costs to make the opening bid. This leads to so-called monocultural situations in which companies spring up who only deal with government contracts (A4e, for instance has had millions of pounds of public money, and it never struck anyone as strange that nobody else wanted to employ it – although A4e claims it has contracts with the private sector, most of its income comes from government contracts). They become the only viable bidder, whose efficacy is rarely tested, and when it is it doesn't matter because they're – this old chestnut – too big to fail. The possibility of corruption, while it looms large, is actually only ancillary. The central problem is that it encourages companies to expand into areas in which they have no expertise and squeeze out smaller, often charitable enterprises already working in that area.
So, for instance, Prospects started off as a south London careers service. It won a £71m contract to do Ofsted's early-years inspections in 2010 (a reminder that outsourcing didn't start with the coalition). Then it got a work programme contract in the south-east worth £50m. Then it subcontracted its "clients", who became those famously shafted Jubilee stewards.
I use this example deliberately: as a firm with no shadow of a misdeed, just a lot of government money, for work it sometimes subcontracts and doesn't have to take responsibility for. Its executive chairman, Ray Auvray, makes £193,354 a year – this actually isn't very much, by the standards of his peers.
The One Society showed last year that private companies whose main income came from the public sector paid their chief executives far more than the highest paid public sector employee. "Serco, which receives over 90% of its business from the public sector, paid Christopher Hyman an estimated £3,149,950 in 2010. This is six times more than the highest paid UK public servant and 11 times more than the highest paid UK local authority CEO."
But if Prospects doesn't overpay its executive chairman, it does turn a substantial yearly profit of £12.6m. It does not seem unreasonable to ask whether rewarding shareholders is an inevitable cost in this sector. Why can't this work be undertaken by not-for-profit organisations, many of which were established for the very purpose of doing it?
The answer is because charities are never large enough to tender for contracts. Instead they are used as "bid candy" for large corporations to demonstrate a sense of social responsibility. The charities often secede from the deal later on, either because they don't get any referrals or because they're only given the "hard-to-reach" cases (15 charities pulled out of the work programme in the second half of last year for these reasons).
This is replicated in every sector: who can afford to bid for a prison? Capita,G4S, Serco, Sedexo; possibly a foreign company of a similar size, GEOAmey. We can't see who's in the running due to commercial confidentiality; all we can do is await the result and remark upon how inevitable it was. The lowest bidder will win, and its "efficiency saving" will generally be that it has managed to drive down wages. Especially in the adult social care sector, how could it possibly be otherwise? Their product is care; the only thing that can become cheaper is the carer or the cared-for. Then we sit back and marvel that 3.6m households are "one push from penury", not because of unemployment, but because wages are too low.
The point is not that it's unfair – it's that here, finally, is an unfairness that we can do something about. We just have to wake up.
Twitter: @zoesqwilliams
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