The Ministry of Justice’s £3.7bn payment-by-results drive for rehabilitation services failed to understand the impact of changes being introduced in a bid to save money at the same time as improving outcomes and has left contracted providers vulnerable to collapse, MPs have said.
A Public Accounts Committee report on the 21 Community Rehabilitation Companies, created as part of the MoJ’s Transforming Rehabilitation programme, warned that the government is a long way from delivering its promised “rehabilitation revolution”, with concerns over the potential failure of some providers.
In January, Civil Service World reported that just two CRCs met their targets to reduce reoffending in the first year of the system’s operation according to figures for 2015-16 published that month. The news followed a government announcement that £342m in additional funding was being made available to the contractors, who are signed up to run services until 2021-22.
According to the PAC’s latest investigation into Transforming Rehabilitation, the MoJ “failed to anticipate the potential for lower volumes of work flowing to CRCs” when it set up the system, and cannot explain what it is getting in return for its revised funding arrangements for providers.
CRCs are financially dependent on the flow of paid work they get, rather than the volume of of offenders they supervise. MPs said in their report said that the MoJ had modelled workflow changes of 2% during the procurement process but that 2015-16 had seen CRC workflows up to 34% lower than anticipated, while projections for the current year were up to 48% lower.
“The majority of CRCs are not much closer to a sustainable position than they were before the contracts were changed, despite the additional funding,” MPs said.
“The ministry did not persuade us that the CRCs will improve the services they deliver.”
The committee said that despite the bailout, 14 of the 21 CRCs were still forecasting losses, a situation that they said “raises concerns about the potential for contracts, or providers, to fail”.
They added that one of the CRC providers, Interserve, was a “particularly worrying” case in the light of January’s collapse of Carillion. Interserve has multiple government contracts and has issued two profit warnings, however yesterday it announced the agreement in principle of a £290m refinancing package.
Interserve is the majority partner in the Purple Futures venture, which runs five CRCs. Its Merseyside operation was one of the two CRCs to hit its first-year targets, according to January’s figures, however the other four were among the 19 that did not.
PAC chair Meg Hillier said her committee’s investigations into progress so far with CRCs raised questions about whether the current arrangements would be able to deliver the promised benefits of reducing reoffending before the contracts expire in 2021-22.
“The so-called ‘rehabilitation revolution’ is showing worrying signs of becoming a contracting catastrophe,” she said.
“Despite a massive injection of additional taxpayer cash, two-thirds of CRCs are forecasting losses and one provider, which holds multiple contracts across government, has issued profit warnings."
This combination of poor performance and financial instability "is neither acceptable nor sustainable", Hillier said, and the government’s attempt to "spend its way out of difficulty" wasn't working.
“It must act now to limit taxpayers’ exposure to risk and give this flagship strategy a fighting chance of delivering what it promised,” she added.
The committee called on the MoJ to update members on the financial stability of CRC providers by the end of next month, and also detail gaps in the current rehabilitation system and ways third-sector organisations could fill them.
The Transforming Probation scheme saw probation services split in 2014 between a public-sector led National Probation Service and the 21 CRCs, owned by eight providers. The NPS advises courts on sentencing all offenders and manages those presenting higher risk of serious harm; CRCs work with low- and medium-risk offenders and are tasked with reducing reoffending rates and frequency of reoffending among those who go on to commit more crime – the two measures on which bonus payments are determined.
At one stage, the government’s investment in Transforming Rehabilitation was envisaged as saving £12bn over the course of the seven-year run. However a 2016 PAC report noted that IT problems with new systems had necessitated compensation payments of £20m while the MoJ was unable to demonstrate that the new rehabilitation system was a success.
A 2016 National Audit Office report put the government’s investment in CRC contracts at £3.7bn over the period to 2021-22.
Reacting to January’s CRC performance figures, Howard League for Penal Reform campaigns director Andrew Neilson said they appeared to underscore that “rhetoric” about payment-by-results had been a cloak for “taking money out of the system”.
The MoJ has been approached for a response.