MoJ, Carillion, Amey: partners in failure

Last week's BBC 'File on 4' programme posed the question: 'Britain's squalid prisons: who's to blame?' [That should of course have read 'England and Wales'. It would indeed have been illuminating to include Scotland, where these services have not been outsourced.] The answer illustrated a perennial truth of outsourcing: that behind failure (or success) by outsourcers often lies failure (or success) by the customer.

Contracting for FM services is hardly rocket science. The UK has the most developed FM services market in the world. Many organisations, public and private, outsource FM – including the BBC and the Guardian – and it's not hard to see why. If your business , say, journalism, you have no expertise in running FM directly - and no wish to. A specialist firm is likely to be both cheaper and better than building your own in house service. Margins in the sector are extremely tight so you aren't paying a lot extra to buy it in.

Agreed, there are special circumstances in the peculiar world of prisons: as the programme pointed out, some problems need fixing right away, others (broken windows, showers) have different consequences in prisons than in the outside world. But such things can be written into contracts.

Both the Amey and Carillion contracts were disastrous since the start. 'File on 4' had meticulously trawled through reports by Independent Monitoring Boards (local people who provide an external presence in each prison) and found complaint after complaint. Among the worst cases was Liverpool prison. I read this passage in the Chief Inspector's report with incredulity, shame and anger:

I found a prisoner who had complex mental health needs being held in a cell that had no furniture other than a bed. The windows of both the cell and the toilet recess were broken, the light fitting in his toilet was broken with wires exposed, the lavatory was filthy and appeared to be blocked, his sink was leaking and the cell was dark and damp. Extraordinarily, this man had apparently been held in this condition for some weeks (1)

The Justice Committee rightly gave Michael Spurr a hard time on this report at their hearing on 24 January. It looked a career-shortening session.

Why did it all go so wrong? It's pretty clear:

1. the contracting exercise was flawed. MoJ have admitted that they didn't understand their own in house costs and that this lead to the contracted service being underfunded
   
   
2. two contractors, Amey and Carillion bid extremely low, much lower than other bidders
   
   
3. MoJ accepted those ultra low and as it turns out, undeliverable bids.
   
   

On (1), what the MoJ says is:

the costs of maintenance and services were not clearly understood by the business and consequently planning assumptions have not held true. The contract is therefore underfunded and the declared efficiency savings reduced. Financial risk within the contract can be attributed to four main areas: asset verification, asset condition, service verification and variable costs. Actions have been taken within each area that are ongoing but to date have ensured clarity on financial risk and have allowed negotiated settlements to be reached that reflect true contractual costs. Appropriate governance has been put in place that now ensures that variable costs are accurately reported and justified and that claims are assured by the Contract Management team.

MoJ concluded that the mistakes it made in contracting

may impact on service provision and declared efficiency savings (2)

So, to be clear: MoJ knew, before Carillion collapsed, that its mistakes in contracting were likely causes of unacceptably poor service. That must, I think, raise the possibility that the contractors have some legal redress against MoJ in respect of incorrect information given in the contracting process.

I note also that both companies were subject to huge financial penalties for poor performance: in Carllion's case, £4m in 18 months. Interestingly, the fines against Carillion, levied month after month, stopped suddenly in June 2017. Was this the point at which MoJ realised its own miscalculations were the root cause of the contractors problems? Did MoJ then increase increase its payments to contractors, to make good the errors in contracting? Have the companies not some legal remedy, since the fines might arguably have been in some measure caused by MoJ's incompetence in contracting on an unsound basis?

There is a lot of murkiness about the figures. Remember, MoJ said the contracts would cost £80m a year, so against about £105m for the in house operation. But a recent PQ discloses that that is the price only for fixed costs and excluded indexation and 'variable works' (3). So we don't know what the all-up cost was expected to be - or actually is. Did MoJ simply forget about variable costs? MoJ now say the £115m cost reductions will be achieved. But will any cost reduction be achieved? If not, why not? Or are MoJ asserting that their previous in house team can beat the prices of any commercial FM operator?

Would slightly higher bids have worked? Well, as it happens, we have an example. Before these contracts were let, MoJ had let FM contracts for 2 London prisons to another company, MITIE. Those prices were between the rock bottom prices bid by Amey and Carillion, which have proved unsustainable, and MoJs own internal costs. And that contract is still operating reasonably well.

The programme highlighted the way the bureaucracy of the contract created problems. Previously, if the guys turned up to do some work in a cell and a nearby cell needed fixing too, they fixed that as well. Now, they must go away while the customer raises another order form, sends it to the contratcor's management and that then goes down to the guys again but by that time they are somewhere else.

What happens now? Since we now know, and MoJ has admitted, that the contract was underfunded, one must expect the cost of the service to increase. It will be interesting to see by how much. Would such an increase brings the price close to the bid by MITIE, which we now know was deliverable, but rejected in favour of too cheap bids?

'File of 4' raised one other matter, which is an impact on staff, not prisoners. Two long serving works staff at Liverpool prison, transferred to Amey when the contract started, spotted that Amey's 'efficiency' of requiring staff members to do work in a cell alone, rather than in twos, created a potential security risk through theft of tools while staff were up ladders etc – and that for 'tools', read 'weapons'. They went to see the Governor, who had previously been their Governor, to raise the issue. Amey then sacked them for 'bringing the company into disrepute'. You couldn't really make it up, could you? But the men surely have a cast iron defence. I mean, how could anyone bring Amey more into disrepute than it already is?

There is much about this scandal that is still concealed from the public, and from Parliament:

1. Has there been any inquiry into how MoJ made such mistakes? Have their been any consequences for anyone? (I can help with this one, because I have learned it by heart: those responsible have moved on, we are busy learning the lessons, this scandal is the private property of HMG, please leave at once)
   
   
2. What was the difference between the MoJ's erroneous estimate of its costs and the true figures, and how far was the contract under-funded as a result?
3. When was the error discovered?
4. Were contract prices increased as a result of the discovery? Why did MoJ not refund some or all of the fines levied on the companies?
5. Why was the failed Carillion contract not offered to MITIE, at the price MITIE originally bid?
6. What level of cost reduction could still be achieved while providing a decent service and how it that going to be delivered now?
7. Why are the ex Carillion staff working in prisons now employed by a company owned by MoJ, rather than by MoJ?
8. How will the Ts and Cs of those staff differ from other staff in prisons who are directly employed? Are their Tc and Cs to be changed and if so, at what extra cost?
9. How will poor performance by this publicly owned company be dealt with?
10. Is this public owned company going to compete for FM contracts against the private sector in future and if so, how will fair competition be demonstrated? If it isnt, why is it a company and not part of HMPPS?

What is so disturbing about this scandal is that these should have been about the most straightforward contracts you could think of. Hundreds of FM contracts are let every year. Yet MoJ found them too difficult. Same with the tagging contracts, which MoJ had been letting for 20 years without trouble, but which fell apart a few years ago in a series of botched procurements that have cost the tax payer millions (4). Same with the contracts for rehabilitation of short term prisoners, which in the opinion of the auditors, were so bad they might as well never have been let – and which did not require the contractor to achieve anything in the real world, but merely to produce bits of paper (5). Not to mention the (much more ambitious) botched probation contracts which have almost destroyed a service which MoJ itself reported was functioning well in 2010, and so placed the public at additional risk (6). Or the audit of MoJ procurement published as far back as which revealed a Department with massive, systemic weaknesses in every aspect of procurement (7).

MoJ have been 'learning lessons' of successive procurement disasters and promising to improve performance for too many years now. And not just procurement – prisons, probation, courts, sentencing policy, wherever you look, MoJ is failing. It is in fact a failed Department, like a failed school, or failed hospital, or even a failed prison. Thing is, when a school or hospital fails, Whitehall removes the top management and takes it over. But when Whitehall fails, as MoJ so clearly has, who takes that over?



Notes

1. Report of an unannounced inspection of HMP Liverpool 4-15 September 2017 (HMCIP, 2018)
2. NOMS Annual report and accounts 2016-17 HC 198 (2017)
3. Hansard WA 18 July 2017
4. The new generation electronic monitoring programme (NAO, 2017)
5. An Inspection of Through the Gate Resettlement Services for Prisoners Serving 12 Months or More. A joint inspection by HM Inspectorate of Probation and HM Inspectorate of Prisons. June 2017
6. 'Government's privatisation of probation services 'putting public at risk' as offenders monitored by phone' Independent 14 December 2017 on press briefing by Chief Inspector
7. Contract management review (Ministry of Justice, 2013); and Home Office/Ministry of Justice. Transforming contract management HC 268 (NAO, 2014)