British governments have long used private companies to deliver public services. However, in recent years the extent of contracting and the complexity of the services to be delivered have radically altered. The Blair-Brown governments and the coalition have significantly broadened their use of major companies to provide everything from hospitals to prisons.
The impetus for change had a number of sources. For example, as chancellor Gordon Brown insisted on the use of private providers to rebuild the London Underground through a public-private partnership. The Treasury believed the public sector was incapable of delivering infrastructure projects at a reasonable price.
The coalition also brought in private companies to deliver security for the 2012 Olympics, largely because there was a large, one-off, need for public protection. And successive governments have sought to deliver Whitehall buildings management and maintenance by the use of facilities management companies.
Governments have, from time to time, used private providers where the existing public sector service has been seen to have failed. The National Audit Office (NAO) has observed that the government sees contracting out as a way of reforming public services, reducing costs and improving value for money. It is worth adding that large private corporations have also used contracting out as a way of delivering similar impacts.
Despite all this change, central government is still less likely to contract out than local authorities. Councils are more innovative than Whitehall, and have been put under far greater budgetary pressure. Overall, the NAO has calculated that across the public sector four major providers (Atos, Capita, Serco and G4S) held contracts worth over £4bn in 2012-13 – a figure which is likely to have risen subsequently.
There have been failures. Early in the life of the 1997-2010 Labour government, implementation of so-called Individual Learning Accounts – which had been operated by Capita – was found to be vulnerable to fraud. In fairness to Capita, an NAO report suggested that the government’s design and planning of the policy was at fault rather than the contractor’s operation of it. The London Underground PPP mentioned above, which was an abject disaster, also owed more to the government’s failed model than the companies themselves.
In launching a recent Public Accounts Committee report on the government’s use of private contractors, chair Margaret Hodge stated: “Recent scandals illustrate the failure of some contractors to live up to expected standards. These include the astonishing news that G4S and Serco had been overcharging the Ministry of Justice on their electronic tagging contracts for eight years, including claiming for ex-offenders who had actually died – and the complete hash that G4S made of supplying security guards for the Olympics”.
She went on to highlight other problems, notably the provision of out-of-hours GP services in Cornwall and the delivery of court translation services. But, of course, there are many other contracts which are successful and which do not receive publicity. The implementation of the London congestion charging scheme by Capita is a good example of a complex policy effectively delivered. Moreover, there is no chance that any future government would dispense entirely with the use of private companies to deliver public services.
There are a number of issues which central and local government need to be aware of in the future use of private contractors. Most obviously, the service must be capable of being specified in a contract, and the public sector needs to know how to be an effective client. Project oversight and good relations with the contractor are essential.
But one of the most challenging problems is the risk of too little competition in the market for major public contracts. Because government services are often nationally-provided, the contracts for parts of them are themselves very big and complex. Inevitably, there are few organisations with the scale to bid for the work. With some kinds of contract, there is a risk that only one plausible bid will be forthcoming. Once the contract has been awarded, there is no competition at all for the winner, at least until the contract is re-tendered. Existing providers can have an in-built advantage when such re-tendering occurs.
The NAO has pointed out the advantages of large private service-deliverers, which can achieve economies of scale and expertise, are less likely to suffer corporate failure, and have the financial resilience to absorb up-front costs. They can also help to manage long supply-chains of smaller providers. But there is also a risk that these advantages can be out-weighed by the emergence of a small number of near-monopoly companies.
Government departments will have to improve their management of contracting if there are to be fewer failures of the kind regularly described by the NAO and Public Accounts Committee. It may also be necessary for the market to be operated in such a way as to ensure there is sufficient competition for contracts. Possibly, as has been suggested for the railways, one or more public sector entities may need to be allowed to compete with private companies. But most importantly, Whitehall will need to improve its skills-base to deliver balanced and transparent competition.