Why is procurement in the MoJ such a persistent failure?

Another month, another damning report on procurement in the Ministry of Justice.

In June, we had the joint Prison/Probation Inspectorate report on contracts for 'Through the gate' services, to prepare short term prisoners for release, which concluded that

“if [these] services were removed tomorrow....the impact on the resettlement of prisoners would be negligible” (1).

In July, we had the National Audit Office report (2) on the interminable saga of procurement of electronic monitoring of offenders: now on the third attempt, 5 years late and counting, millions wasted on nugatory work, savings missed, unrealistic requirements, unrealistic timescales, wrong contracting model, botched programme management, inadequate staffing, contracts unclear, oppressive treatment of contractors – whatever could go wrong, did go wrong. And much of which was foreseen by observers at the time.

A steady stream of inspection reports have been critical of the probation services delivered under contract by Community Rehabilitation Companies (CRCs) (Suffolk -'nowhere near good enough', Northamptonshire - 'simply not good enough' , Gwent – 'a troubling picture at the CRC'). Last month the MoJ slipped out a statement admitting that the contracts were failing and giving the CRCs more money, though they won't say how much – 'commercially confidential', effortlessly trumping the citizen's right to know what is done with his money (3). These are the contracts where extra money was supposed to be payment by results – turns out they get extra anyway, success or failure. 'Risk transfer', certainly - just not in the right direction.

Similarly with the MoJ's FM contracts with Carillion for maintaining prisons. This from the Independent Monitoring Board at Pentonville Prison the other day:

“Aspects of the physical environment are squalid, with blocked toilets, leaking sewage and broken facilities meaning prisoners regularly go without showers, clean clothes and hot food. The prison struggles to ensure the basics of decency largely due to the outsourced provider responsible for maintenance: Carillion........The contract is working neither for Pentonville nor the taxpayer” (4)

The MoJ seem intent on rivalling MoD as the Department whose every procurement results in the familiar cycle of damning report, action plan, 'those responsible have moved on' (so sadly, can't be held to account) while – of course! - 'we are determined to learn the lessons'.

Explaining endemic failure

It is worth asking why MoJ has accumulated such a history of failure, for two reasons. First, the MoJ delivers a huge amount of its services through contracts – MoJ's spend through contracts is now not very far short of what it spends on its directly managed service. So if MoJ procurement is failing, then the Department is failing – and that raise questions about the ability of Government to manage outsourcing on an ever bigger scale, indeed, quite why outsourcing is such a brilliant idea.

But, second, it didn't used to be this way. Look back 10 years: contracts for prisons, and escorts, which had certainly had their share of teething problems in the 1990s, had settled in, and were running well. In 2006, the NAO produced a very positive report on the electronic monitoring contracts, the ones which are now so problematic (5). So what happened after 2007 (coincidentally or not, the point when these services moved from the Home Office to MoJ)?

1) the MoJ's history of failure goes back many years

It is tempting to think that it's all down to 'cuts', and Grayling's hasty and ill-advised schemes. But the appalling state of procurement in MoJ was evident well before any of that. In 2013, the then Justice Secretary revealed that his officials had over some years paid SERCO and G4S £200m for work they had not done. He referred the 2 companies to the Serious Fraud Office, and they are – still! – under investigation. The companies had to repay the money, lost contracts, lost their CEOs and lost huge share value. There has been no investigation however of why MoJ officials paid £200m of bills without checking them; nor what exactly the companies told MoJ officials of what they were doing, around 2010; nor of changes MoJ made to these contracts that made overcharging easier and, perhaps, even lawful; nor of the Internal Audit report around 2010 that flagged up this weakness, and which was also ignored.

What we did get was an audit of MoJ's big service contracts: and it was devastating (6). 5 out of 7 major operational contracts – on which law and order services in this country depend – were flagged as 'red', meaning weakness in contract management giving rise to significant risk of operational failure , or material errors in charging. Overall, the verdict was 'long standing and significant weakness in contract management' in MoJ. Meanwhile the Public Accounts Committee found evidence of failure to recruit experienced staff, botched reorganisation, failure of operational and commercial staff to work together and a culture in which accountability and responsibility were lacking (7). 'Nul points', in other words.

It goes without saying that the Permanent Secretaries who presided over this shambles sailed on into their well pensioned retirements without a scratch.

2) Grayling knew all that - yet insisted it did much more, much faster

It was on this weak, badly performing procurement organisation that Grayling chose to impose the burden of one of the most rapid, risky, complicated, ill-thought out and evidence-free procurements ever attempted in Government, the part privatisation and wholesale re-organisation of probation services. Here's what I wrote two years ago:

“The TR changes lack compelling rationale or evidence, are uncosted, require extremely rapid implementation of new, highly complex organisational and relational models for all participants simultaneously, use payment mechanisms that are entirely untested and carry major risks of unforeseen consequences, rely on new and untested suppliers, require high levels of competence in contracting and contract management that the MoJ has recently been shown to lack, are being implemented at break neck speed for no reason, and there seems to be no recovery plan if goes badly wrong .

It is like watching people doing their best to organise the perfect train crash.”(8)

There is not the slightest reason to think the new arrangements have brought any benefit; plenty to think they came at great cost.

3) MoJ officials adopted a bizarre and unworkable contracting model

However it would be very unfair to place all the blame on Grayling. Because it was at this point that there was a strange development in MoJ procurement which, I believe, is entirely down to officials – possibly to just one official (8A). This was the replacement of traditional 'vertical integration' of complex service contracts – so that all the work to provide a given service done in one area is contracted to a single contractor – by 'horizontal integration', by which the service is divided into different components, and all work on each element in contracted to one contractor across a wider area – thus, in one area, you have many contractors supposedly working together to deliver the service.

This was done in prisons (so that a governor had different contractors providing FM services, resettlement services, education and healthcare services in his prison, on which he must rely, but for which he held none of the contracts himself); in probation (so that in every area you have the rump of the public service providing services for high risk offenders, the contractors providing the same services for other offenders, and the public service handling the interface between all offenders and the courts); and electronic monitoring (where hardware, software, telecoms and service preparation were all contracted out separately).

This strategy was uniformly disastrous, and in fact has been condemned by Government itself (9). Not hard to see why: it means that it is next to impossible to pin down service failure, and that a great deal of energy is wasted by companies and by Government trying to integrate the service locally, usually not very well. This has been a major cause of under-performance, or delays in procurement, or both.

4) MoJ has repeatedly failed to ensure adequate competition

So why on earth did MoJ adopt it as their contracting model? The explanation suggested to me is that they wanted to reduce reliance on the big outsourcers at the heart of the tagging scandal in 2013 – SERCO and G4S. But the way to do that was, obviously, to bring in new contractors – to develop the market (and as Government is the only customer, it is wonderfully placed to do that). Yet that is precisely what MoJ has not done. On tagging, for example, the MoJ tried to use an SME, Buddi, but ended up by imposing such unreasonable terms that Buddi withdrew, publicly scorning MoJ's incompetence. Similarly it failed with another SME, Steatite. It then ended up awarding the outstanding hardware contract to – G4S, who are still under investigation for massive fraud on that very contract!

Similarly with prisons, where MoJ foolishly allowed the market to consolidate to just 3 contractors, in 2008. They then lured contractor after contractor to enter the market – GEO, Reliance and MITIE amongst them – only to continue to award every contract to the existing big 3 (10).

It is a brainless and utterly self defeating thing thing to do, because every potential contractor sees them doing it, and swears never to get involved. It makes MoJ ever more dependent on the same big contractors, hence their unhealthy dependency on G4S (11).

5) MoJ is still getting even the basics wrong

So much for MoJ's over-complicated, unworkable model for contracting. But there is evidence that even the basics of more workaday contracting are still beyond MoJ. How is one to explain, for example, the fact that the contracts for 'through the gate' services in prisons, designed to prepare prisoners for successful re-entry to the community, don't actually require the contactor to do anything to help the prisoner – the single output required is a piece of paper, a resettlement plan. That is all the CRC need do to get paid. And so little wonder the inspectors

“saw blank plans, or actions in plans which were marked as ‘completed’ when actually no work had been done. This was apparently so that the CRC minimised the chances of being in breach of the contract ...The services we saw could not reasonably be expected to impact on levels of re offending.” (1)

Or this, from the recent report on the continuing fiasco of the tagging procurement:

“internal and external reviews noted a lack of accountability to the senior responsible owner (SRO) and unhelpful disunity between operational, technical, commercial and programme staff."(2)

These are exactly the same weaknesses to which the audit of contracts in 2013 drew attention. 4 years on, nothing has changed. MoJ is very much busy not 'learning the lessons'.

Conclusion – what is to be done?

So the MoJ's weak and deficient procurement function goes back to 2010, at least; still persists; has been exacerbated by both Grayling's impetuousity and officials' enthusiasm for a flawed contractual model; and on the fundamentals, nothing has changed.

One might think the obvious conclusion from this long history of failure is that MoJ should be cautious in taking on new procurement challenges - particularly anything at all novel or risky or complicated.

Quite the opposite. .MoJ has just adopted a new operating model for prisons and probation based on quasi-contracts of the most bizarre kind, involving an involuted structure that is the stuff of nightmares. Operational line management still exists, as now, reporting to one senior civil servant at the top of the MoJ; but at the same time, another senior civil servant within MoJ will 'commission' services from each prison, decide their budget and their service spec, write a pretend contract and audit their performance. 

He will also take ITC, estate and other infrastructure services away from the operational line management - a massive re-centralisation, and abandonment of the Agency concept introduced 25 years ago (12).  And that includes some service contracts – thus ensuring even more distance between procurement staff and operational staff. (Indeed it appears this may include contracts for prisons and escorting – the only major MoJ contracts not bedevilled by procurement failures. Can it really be coincidence that they were the contracts were developed by the Home Office prior to the move to MoJ in 2007?).

And, icing on the cake, the guy who is playing at shops in this bizarre way, has no experience of prisons, indeed no significant experience of management at all. An arrangement introduced without the slightest reasoning or justification, without any analysis - such that even now, when it has been in place for months, MoJ are unable to explain how it works, how it can possibly work. Thus the mandarinate triumphant, seizing back control from the uncouth mechanics of the prison service – at just the point where the whole system is dissolving in chaos, and needs strong, clear management structures. It really is a spectacular mess, and entirely self- inflicted.

A modest proposal

In this crisis, I offer a modest proposal. It is not at all novel. It is the same model, actually, as Whitehall applies to all failing schools and hospitals. It is this. MoJ is, plainly not fit for purpose: its direct operations are a shambles, and its contracts are a shambles. It is a failing, or rather failed, Department. It should be taken over by another Government - the Scottish Government.  The Scottish correctional services have their difficulties, sure - but are not disintegrating in violent chaos, do not reorganise every 2 or 3 years, run traditional line management, and the Scots not obsessed with bizarre contractual and privatisation models. They are ideally placed to restire order and sanity to MoJ services. Meanwhile an intensive re-education campaign would thoroughly overhaul MoJ, recruit new personnel at key levels, and change the culture.

Then, if all went well, after 5 or 10 years, we could experiment with some limited measure of devolution to Whitehall.


NOTES

(1) “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

(2) NAO 'The new generation electronic monitoring programme' HC 242. July 2017

(3) Hansard, Written Statement, 19 July 2017

(4) The Guardian, 28 July 2017, “Pentonville prison report attacks 'squalid, inhumane' conditions”

(5)  NAO, 'The electronic monitoring of adult offenders1 February' 2006 HC 800

(6) MoJ 'Contract management review' 2013

7) The Oral Evidence to the PAC by the Permanent Secretary was especially revealing. More so than she intended it is safe to assume: (http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/transforming-government-contract-management/oral/12386.pdf

(8) From my book, 'Competition for prisons: public or private?' Policy Press, 2015

(8A) An intriguing reference in the NAO report supports this.

(9) “In February 2015, the Government Digital Service stated that this tower model was “not condoned and not in line with government policy”. This is because of the difficulty in transferring responsibility to a contracted integrator and the risk of buying incompatible parts of systems and services that are then hard to integrate “ NAO report, see Note 2.

(10) The original strategy for market development – the only one, actually, since there has never been another - was set by Derek Lewis in 1992. He aimed at 4 suppliers, as the bare minimum needed for effective competition. This was achieved quite quickly, in 1997. But in 2008, merger lead to reduction to 3 suppliers. MoJ have since invited many other companies to bid, but always awarded contracts to the same big 3. They have now pretty well exhausted the pool of potential new suppliers.

(11) See http://www.julianlevay.com/articles/an-unhealthy-relationship

(12) This model is explored in my evidence to the Justice Select Committee:

http://www.julianlevay.com/articles/evidence-to-justice-committee-sub-inquiry-on-governor-empowerment-etc

It is utterly amazing that the White Paper offered not the slightest case for making such a fundamental change - yet another example of the 'dumbing down' of policy making in the Civil Service.