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Private Provision – The Mistakes

In by Kit on July 12, 2012 at 22:01

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The reported shambles surrounding G4S’s security contract with LOCOG has highlighted, I think, a key problem in the multi-billion pound industry of private provision: the government’s inability to effectively manage public contracts.

Private provision (of public goods) enables the government to function. It is undeniable that the government cannot fully provide the demands on the state without help from the private sector.

Modern private providers are often so enmeshed in our lives that people often mistake them for public services. This is the ultimate aim of private providers. Profit-making private companies’ ultimate aim is to be seen as a public company (and enjoy the benefit that brings) whilst still taking a cheque at the end of the day.

However, unfortunately, this cannot last. However mutually beneficial the public/private relationship is, in many cases the profit-making motivations of private providers have negative impacts on the public purse and the public itself.

There are countless examples, such as A4e where former CEO Emma Harrison awarded herself £8.6m in dividends whilst her company was being investigated over fraudulent welfare-to-work claims. This was on top of a £365,000 pay packet.

Whilst working for a private training and employment provider – hiding under the smokescreen of being a ‘not-for-profit’ organisation – I saw money squandered on overpaid directors, people forced in to work for short term gains and a company so willing to please its Work Programme overlords, it entered into unrealistic contracts which it failed to deliver many times over.

This latter point has been witnessed in The G4S debacle. Competition amongst private providers has caused irrational behaviour. Another training provider I worked for promised, through desperation to survive, that they could deliver impracticable contracts.

It is obvious to purely private companies who do not operate in this sphere (there are a few left). Promising a client too much will not pay off in the long run. Not delivering a contract has far worse ramifications than renegotiation or rejection.

Companies like A4e and G4S have given in to peer pressure and bitten off more than they can chew. Some of this fault however must lie with government as the client in the relationship. It is a failure of both the Coalition and New Labour to effectively manage private provision. The last government especially, gorged on PFI schemes, valuing legacy over sustainability. Highlighted recently, with the pending bankruptcy of two South London NHS Trusts, New Labour’s seduction of public institutions into unsustainable PFI schemes was a case of too much carrot and not enough stick.

For the public/private relationship to work, government must be more robust in their scrutiny of contract tendering. This must happen before GP commissioning takes hold and the concept of ‘any willing provider’ (competitive tendering) is realised. The government must be responsible for its contracts and not be afraid to usher in a new era of government intervention.

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  1. The PFI issue is absolutely massive. I have been looking into it this week. The government will have to renegotiate PFI contracts or the NHS and much else will go bust. I agree with the general ‘we should be concerned about this issue’ argument but I think it’s an issue that needs to be considered in some detail. For example, there is evidence to suggest the context is important. (For example, it may work in prisons but not in health care). I have nothing against it if it works but I agree that there are perverse consequences

  2. I think one of the big dangers here is building a culture of acceptance towards non-fulfilment of contracts. You mentioned the G4S and A4e but there is also the case of ALS whose interpreters have either failed to turn up to court or to sufficiently speak the language they are there is translate – one apparently couldn’t tell the difference between a plea of manslaughter and murder.

    In the private sector procurement managers and departments play a crucial role in securing the best deals and contracts for all parties and ensure that companies who don’t meet contracts are kept off future procurement lists. The admission last year that the MoD has no formal procurement function in place says volumes about the ability of government and civil servants to effectively organize these deals.

    If the current government is keen to run the state more a kin to the private sector they desperately need to adopt private sector skills and practices to avoid the farcical arrangements we have seen over the last few years.

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