Current commissioning is not fit for purpose
This is the fifth in a series of posts on the challenges of modern commissioning stimulated by a recent report from the Reform think tank called “Markets for good: the Next Generation of public service reform”.
This week’s post looks at two final reasons why the current approach to commissioning public services so regularly fails to create a market where there is a wide range of high quality services for members of the public to choose from:
- Providers are exposed to excessive risk
- It is hugely expensive and difficult to implement policy changes.
Providers are exposed to excessive risk
Multi-national companies who have become increasingly involved in delivering public services over recent years don’t tend to attract much sympathy from the press and public.
However, the current practice of putting huge public contracts out to tender every 5-10 years makes commissioning a particularly brutal process.
Every few years incumbent providers risk losing vast parts of their business overnight, sometimes irrespective of performance and often dependent on political fashion. The logical reaction to this situation is for companies to diversify their business and get involved in a wide range of different markets, thereby strengthening the public perception that they are all greedy corporations merely intent on gobbling up as much profit from the public purse as possible.
Governments are aware of this public perception and stress that they are driving the best deal possible with taxpayers’ money.
This leads to an antagonistic relationship between commissioners and providers rather than an honest exchange of views on what sort of contract would provide both best value and a high quality, effective service.
As we saw in last week’s post, this leads to a high stakes poker game with the government trying to push all the risk on the provider who is often happy to agree to meet any contract terms in order to hold on to existing business.
This leads either to the Winner’s Curse where the successful bidder cannot afford to deliver a good service within the contract price or the sort of market disarray we recently saw in the Transforming Rehabilitation competition when Geo withdrew from the tender process after winning the West Mercia and Warwickshire CPA when they realised they were exposed to too much risk.
Policy change is expensive and difficult
Another consequence of these lengthy monolithic contracts is that it is very difficult for governments to change policy direction. Reform makes the point that to implement change a new government will often have to compensate existing providers and institute new, lengthy and expensive procurement processes. Although old providers may get some compensation, all potential providers are then faced with two lots of very expensive tendering which, typically, excludes smaller providers from being able to get involved.
This also means that huge amounts of public money have been spent by successive governments on a duplicated procurement process.
The current system isn’t working
This series of posts has set out a litany of reasons why the current approach to commissioning public services isn’t working. To summarise:
- Small providers struggle to get a meaningful slice of the action;
- Big providers risk their reputations at the hands of a critical media, and the prospect of losing half their businesses overnight if key bids do not go their way; and
- Most importantly, governments have to put up with time consuming, expensive processes, a gaming relationship with providers, and unpopular contracting models that attract political criticism.
All of this produces poor services for some of the most disadvantaged people in society.
As always, analysing the faults in a system is a much easier task than suggesting a remedy.
Next week I’ll look at Reform’s proposed solution; a licensing system which seeks to open up public markets and encourage a more diverse and effective provider base.