“Huge profits being earned by major private companies at taxpayers’ expense,” says BBC

Janet Downs's picture
BBC Radio 4’s “File on Four” investigated outsourcing in the light of failures such as the collapse of West Coast mainline plans and the G4S Olympic fiasco. The rush to sign outsourcing contracts, the BBC concluded, could lead to undesirable consequences such as being tied into contracts which delivered inferior services and offered poor value.

Margaret Hodge, chair of the Public Accounts Committee (PAC), said there were huge pressures to reduce costs by outsourcing but feared “due diligence” was missing. The pressure to expedite contracts quickly brings dangers. Tim Banfield of the National Audit Office(NAO) said in-house savings take a long time but outsourced contracts showed savings immediately the contract was signed. This could look good on paper but “the reality might be quite different” he warned.

Banfield said the NAO was researching public sector procurement. It was too simplistic, he said, to argue that the public sector always gets it wrong while the private sector always gets it right. The NAO hadn’t seen sufficient evidence that savings could be made by outsourcing although it hadn’t yet completed its work. The BBC noted a trend: local authorities (LAs) were returning services in-house claiming they could provide services more cheaply than by outsourcing.

The BBC described how Ministry of Justice outsourcing led to chaos in court translation services and achieved poor value for money in tracking offenders. One of the firms contracted to provide tagging was Serco Monitoring which purchased its IT services from Serco Geographics. 60% of the substantial profits of Serco Geographics came from the Ministry of Justice contract and much of these were, quite legally, paid to Serco Ltd in dividends. The Network of Forensic Accounts described how profits can be “shuffled” between subsidiaries – this could make it appear that a subsidiary was producing a lower profit thereby being able to show it was making less money out of its business than was the case.

Rory Geoghegan of Policy Exchange had investigated how good a deal the Government was getting from existing “tagging” contracts. He had found it difficult to discover whether tagging contracts were value for money because neither the contracts nor the figures were public. He said the cost to the UK taxpayer was 60% higher than for a similar contract in the USA.

Margaret Hodge said the PAC would look at the Serco tagging contract and added that such cases showed transparency was essential to gauge whether a fair profit was being made at a fair price. Such contracts should not be hidden behind a “veil of secrecy” – commercial confidentiality was used as an excuse for hiding data from taxpayers who paid the bill.

Calls for more outsourcing are becoming increasingly loud. At the same time doubts are being expressed about transparency and effectiveness. And when these calls cover services for vulnerable people – particularly health, social care and education – then it’s essential that the risks in achieving value for money from delivering services through markets are properly understood and evaluated.

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Janet Downs's picture
Sat, 27/10/2012 - 13:09

Headlines in this week's TES:

"Training director accused of 'rip-off' sees earnings fall. But publicly funded Elmfield still makes a profit of £5.3m."


"Lead providers make 35% profit for 'little work'. Ofsted finds subscontacting boom has 'diluted accountability'"


And from the Guardian in an article about the sentencing of so-called "care workers" at the now-closed Winterbourne View care home, run by Castlebeck Ltd:

"The judge condemned Castlebeck for the way Winterbourne View was run. 'It is common ground in this case that the hospital was run with a view to profit and with a scandalous lack of regard to the interests of its residents and staff.'"


agov's picture
Sun, 28/10/2012 - 09:37

"He had found it difficult to discover whether tagging contracts were value for money because neither the contracts nor the figures were public."

There's a surprise.

Janet Downs's picture
Tue, 30/10/2012 - 08:21

Last night's Channel 4 Dispatches, Getting Rich on the NHS, (shown again tonight at 8pm on 4seven) investigated Virgin Care. The programme featured one surgery where the number of full-time GPs had fallen and opening times were not extended as promised. Virgin had been given one contract in Surrey despite another bid from an experienced group gaining more "points". In Teeside Virgin Care had been fined for missing targets for screening so asked staff to take screening packs home and test family and freinds.

The programme also highlighted a potential conflict of interest where GPs have business stakes in the medical services they offer patients.

Finally, The programme said that the Virgin group saw the NHS as an opportunity with the ultimate aim of making a profit. However, if the market fails then taxpayers are left with the bill. More seriously, though, is the threat to life.

Public services are too important to be handed over to private providers who, in the end, want to make a profit.


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