Beware the private sector bearing gifts

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Roll up, roll up for the great prison giveaway.

The aim of the game is quite simple: promise the earth and the Ministry of Justice will hand you the keys. All you then need to do is shrink the workforce, slash the budget and make sure you lock the doors at night. We’ll see you again in six years or so. Of course, I jest. But if QI-style klaxons aren’t sounding at the MoJ at the slightest hint of a commissioning process, I want to know why.

Last week you may have seen the department announce that three bidders – Serco, Sodexo and MTC/Amey – are still in the running to manage five prisons in Northumberland and South Yorkshire (three others will stay in public-sector hands).

Four companies have already fallen by the wayside – including G4S, which not only missed out on new business but was also told its contract to run HMP Wolds will not be renewed next year. (Somehow the papers managed to link this to the company’s record on Olympic security, though what this has to do with prison management I know not.)

So three candidates remain, having collectively convinced ministers they can save £450m from the prison budget over the next six years. The MoJ announcement said the competition process would ‘deliver’ (sic) cost reductions and improved working models. It makes you wonder why the government never tried saving money and improving the service before, given it was apparently so easy.

Prisons minister Jeremy Wright yesterday told the Commons that the difference between one private and public sector bid was ‘substantial, and it would not have been responsible to ignore that gap’.

Which brings us seamlessly onto another bit of news from last week, this time the National Audit Office’s review of the franchising of Hinchingbrooke NHS Trust. In November 2011, responsibility was handed over to private company Circle, largely on the basis of promised savings of £311m.

The NAO found that, while standards have improved in some areas, the trust had generated an in-year £4.1m deficit by September 2012 - £2.2m higher than planned. The NAO also found the NHS East of England Strategic Health Authority ‘did not fully consider the relative risks of bidders’ savings proposals’. This assessment, it found, had the potential to encourage ‘over-optimistic bids’.

I have no doubt that the three bidders for prisons contracts are presenting an honest assessment of their financial forecast. But they’ll be trying to convince a department which, according to the Justice Select Committee report in August, had ‘insufficient experience and skills’ to commission effectively.

By encouraging private companies to bid first and foremost on cost, the temptation will be to opt for the one that can promise the earth.

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