Limited competition for new probation market

The third post in my series on the National Audit Office Transforming Rehabilitation report reveals there was limited competition for new probation market.

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The procurement process

This is the third post in a series on the National Audit Office’s first official assessment of the new probation system introduced by the MoJ’s Transforming Rehabilitation reforms (summarised here). It focuses on Part One of the NAO report which examines the TR procurement process.

The failure to develop a diverse market

The NAO reports that, reflecting ministers’ objectives to open the market, the MoJ put extensive effort into attracting a diverse range of potential bidders, whether as prime contractors to lead consortia, or within supply chains. More than 700 private, public and third sector organisations registered an interest following initial advertising.

However, in the event only one of the 21 Community Rehabilitation Companies (CRCs), for Durham Tees Valley, was won by a contractor from outside the private sector.

Voluntary sector bodies considered that government had ‘oversold’ the prospects for them to win as prime contractors, and that the time and resources they had used to participate in the competition were not well spent. They recognised that Transforming Rehabilitation represented a step up in size even for large voluntary organisations, but considered that their track record and ideas made them credible bidders. Crucial factors that they thought worked against voluntary sector bidders included:

  • voluntary bidders’ difficulty in bidding for more than two CRCs, compared with private companies that had the resources to achieve greater economies of scale;
  • the fixed timetable, combined with the need to deal consistently with bidders, meant that in their view the Ministry sought to transfer more risk than charities, or their trustees, could accept; and
  • initial lack of detail about the Ministry’s requirements for financial guarantees from bidders, which led to protracted but largely unsuccessful efforts to find solutions right up until bidding.

CRC winners NAO

A lack of competition

Initially there were  30 potential prime contractors who intended to make detailed bids. 11 of these either withdrew or became ineligible during negotiations around “contractual terms and exposure to risk”, leaving just 19 bidders for 21 CRCs and not all of these submitted eligible bids. In 5 CRC areas there was in effect only one bid which met the MoJ’s standards.

Anyone involved in this process will remember the confusion and frequent and quite late changes in the procurement process, in my opinion chiefly attributable to the fact that the MoJ had to run such a large-scale competition at short notice and complete it within a very short timescale because of the political imperative of having the process concluded prior to the 2015 general election.

The graphic below shows how hectic the procurement process was:

NAO TR procurement

Incentivising performance

The NAO report provides a helpful summary of the terms of the new probation contracts under which the CRCs receive three main payments:

  1. a fee for service, for the satisfactory completion of activities with offenders;
  2. a fee for use to cover work done for other parties, particularly where the NPS commissions CRC to provide services for its own higher-risk offenders. It is forecast that fee for use payments to CRCs in 2015-16 will be some £20.6 million in England and £1.8 million in Wales; and
  3. payment by results, triggered by reductions in reoffending after two years, based on scaled payments of up to £4,000 per offender who desists and £1,000 per offence avoided.

Payment by results represents around 10% of total predicted payments to all CRCs. The NAO notes that in principle, this limits the incentive on providers to innovate and focus on ‘what works’ to reduce offending.

The NAO notes that the MoJ is also using the fee for service as a way of incentivising performance — in this case by imposing financial penalties if the CRCs do not achieve stipulated service levels. Service credits can be deducted quarterly, to a maximum of 15% of invoice payments, where there are shortfalls in performance. The most heavily weighted service levels measure the proportion of offenders who actually complete the various orders or other courses of supervision ordered by courts. These service levels make up some 90% of potential deductions by value.

Benchmark

A key point revealed in the NAO report is that the MoJ estimated that the new probation system should generate reductions in offending of 3.7 percentage points compared with an MoJ-predicted reduction of 1.1 percentage points if the CRCs stayed in public ownership.

This then is the definitive benchmark against which the new system will be measured.

 

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