Public Procurement – Private Provision: why should we be worried?

May 2006

Sanjiv SachdevKingston University

s.sachdev@kingston.ac.uk+44(0)20 8547 8759

New Public Mgt “competition is the permanent force for

innovation that government normally lacks”Govt: ‘bloated, wasteful, ineffective’(Osborne and Gaebler, 1992)“The bracing winds of competition …should apply to the public sector as well as the private sector” (Gordon Brown, 2003)“an unflinching commitment to competition”(Labour Party manifesto, 2005)

Private sector delivery of public services

• Important– controversial; c. 12-18% (up

to £60bn) of central & local govt spending by 2006/7

– affects large numbers of workers

– centrality of labour costs•Neglected

– IPPR (2001), OGC, HSC (2002), Treasury (2003)

Extending the reach of the private sector

“This [PFI] is the Heineken of privatisation – taking the private sector to parts of the government machine not reached by previous privatisations and contracting out”

Sir Alastair Morton (1995)

Impact of private sector provision on workers: the

evidence• Propaganda (note IFSL)• Indirect

– Historical – Patterns of employment relations

in the private/public sectors– International (US/Australia)

• Direct– Mostly tentative, except Prison

Service– Commercial confidentiality

IFSL

“empirical evidence suggests high levels of satisfaction among transferred employees on signed deals.” Public Private Partnerships: UK Expertise for International Markets, 2001

“anecdotal evidence suggests high levels of satisfaction among transferred employees on signed deals.” Public Private Partnerships: UK Expertise for International Markets, 2002

The use of labour and private providers

Willets (1993): “Many of the efficiency gains from bringing in private money and management comes from escaping traditional NHS labour practices.”IPPR (1997): “Most private sector operators emphasised to us that the biggest change they made came from…[an] improvement in the utilisation of labour.”

James et al (1997): ‘the workforce would be more controlled, less unionised and less secure’

The UK Prison Service ‘model’

• Extensive experience of private providers

• Not confined to “non-core” activities• Extolled by the Prime Minister and

Chancellor as an example of the private sector bringing “considerable efficiency gains” (Blair, 2002)

• IPPR (2001): the extension of the prison model to health and education

The Prison Service evidence (1)

• Innovation. Exists but limited; overall ‘mixed’ (NAO, 2003). Better on decency agenda, sickness mgt, better shift patterns for prisons. Little difference in daily routine. Inferior on safety and security. Inexperience and low staffing levels.

• Productivity. Fewer staff but longer hrs (less leave)

The Prison Service evidence (2)

• ‘A commonly used method of measuring job satisfaction… is to examine the ‘quit rate’ or labor turnover rate. If workers are leaving the firm or industry more rapidly than normal, then this typically means that wages or benefits are too low, or job conditions are unsatisfactory’ (Moore, 1999:215).

• ‘Rates of turnover will be useful in future research to comparatively evaluate governmental and private prisons…[it] is at least relatively easy to measure and it is one of the several factors that can be used to evaluate prison quality’ (Logan, 1990:133)

• Some private prisons have reduced labour turnover by improving working conditions (Young 1987: 35)

Turnover Reality

• Labour turnover. Quit rate 10x higher (public 2.6/private 27%) As high as 50%. Related to lower pay and less opportunity for progression.

• PSPRB (2004): High levels of turnover ‘caused continuing problems in maintaining staff levels. This put more pressure no existing staff and further exacerbated turnover difficulties’

Innovation(?): sickness absence

• IPPR (2003:10): “sick pay levels are a good example of where the private sector might genuinely feel the need to change aspects of employment conditions”

• CBI (2003:37): “[state prisons] have a significantly worse record on managing sick leave than their privately managed counterparts”

• NAO (2004): – Prison Service (2003-4): 13.3 days– Private Prisons (2002-3): 12.5 days

Pay: claims and reality

• Prison privatisation does “not adversely affect public sector prison employees” who are offered jobs “at similar or increased levels of pay” (Young 1987: 38).

• The Kennedy Report (Australia): privatisation would bring “an important element of competition for Correctional Officers which would ultimately lift their status, pay and conditions” (1988)

Pay and competition“it was very difficult to negotiate down pay rates and conditions of service…it becomes slightly more viable option once you get a degree of competition”Sir Richard Tilt, former Director-General of the Prison Service (1999)“privately managed prisons pay … significantly less than the Prison Service”CBI (2003)

Comparison of pay and conditions for Prison Officers &Prison Custody

Officers (2003-4)Prison Officer (public)

Prison Custody Officer (private)

Av. starting basic pay

£16,896 £16,076

Av. basic pay £23,307 £17,148

Pay range £16,896-£25,788 None more than£3,000

Av. wkly contracted hrs

39 40.9

Overtime pay TOIL, or up to 9hrs at standard rate

None, flat rate or 1.5x

Pension Final salary (retirement at 60). Employer contribution equiv. to 14%

Money purchase (retirement at 65) Employer contribution 10%

Annual leave (days)

25-33 20-23

Privatising responsibility

•Govt responsible for policy not operations

•Complex chains of subcontracting; difficult to establish who is responsible

• Shedding responsibility?

Death of the ‘model employer’? A

private/public sector comparison

Private

Public

Equal Pay reviews (completed or planning)

37% 68%

Flexible working for wm workers (e.g. term time working, flexitime, annualised hrs)

16% 47%

Access to job-sharing [wm/men] 15%/6%

34%/23%

Provision of ‘model’ family-friendly practices

3% 20%

Occupational pensions 54% 80%

Sick Pay beyond stat min. 59% 78%

Career breaks 5% 18%

Seniority of women 8.6% 25.4%

Conclusion• Implications/limitations of

Warwick deal– Monitoring/compliance – Staffing levels– TUPE drift

• ‘Driving innovation through diversity of provision’: Prison internal market (20% private sector; confined to low risk)

• Whither evidence-based policy making?