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Sometimes Bad Buying stories are amusing, or we can learn from events without feeling too emotionally involved. But reports last week about the procurement and management of children’s care services brought just rage and sadness.

These are children who don’t have parents to look after them, or have been placed in care. Many have behavioural issues, or addiction problems.  So keeping them safe and providing an environment where they can learn and thrive is far from easy, and perhaps that is why public sector bodies (local councils) have over the years increasingly outsourced provision of residential facilities and care. The work goes to private sector firms, ranging from very small (individual foster parents at the extreme) to larger firms, including those funded or owned by private equity.

The Times reported problems both with the performance of some firms plus what looks like a rip-off in terms of the prices charged. The average cost per week is now £4,130 per child, and there is evidence that through the pandemic, new “get rich quick” firms have come into the scene, providing poor care and facilities but taking advantage of the lack of physical inspections by the regulators.

The Times highlighted cases reported by Ofsted (the regulator):  

  • Children were able to steal knives from one home and take them to school.
  • Staff dropped a young person off at the home of a drug dealer despite being warned by police to avoid the area; at another run by the same company a child was discovered riding a bike on a motorway hard shoulder.
  • A young person at a third home was found weaving through traffic and high on drugs. On another occasion inadequately trained staff locked themselves in a car when a resident became violent. One of the three people who set up the home was a scaffolder prosecuted for having an eight-inch knife behind the sun visor of his van.

A government review of children’s social care services is underway, and an interim report was also issued last week. The review is being chaired by Josh MacAlister, the founder of Frontline, a charity that has developed a scheme for fast-tracking bright graduates into children’s social work – similar to the Teach First scheme in the education world. I have worked with Frontline a number of times, and MacAlister is one of the most impressive people I have ever met. If anyone can address these seemingly intractable issues, it is him.

However, I did smile at his comment last week (made in a conference speech) when he appealed for large firms to moderate their prices and margins.

“I would implore those of you who are owners of private children’s homes, particularly large groups, to act with responsibility to bring down costs and reduce profit-making and to be responsive to the needs of children. It is better that plans to make this happen are started now”.

Asking firms with private equity behind them to reduce profits is like asking a spider to stop making webs or a fish to stop swimming.  Josh, it’s what they do. I think we can confidently predict that his appeal will have no effect at all.

In his speech, MacAlister also cited figures published in 2020 by the National Centre for Excellence in Residential Child Care (NCERCC) and Revolution Consulting, which identified a 40% rise in independent children’s home prices from 2013-19. The 20 biggest independent children’s social care providers were making combined annual profits of £265m, at a margin of 17.2%. However, the private sector argues it provides care that is as good as that provided by councils directly, at a lower cost.

Coming back to Bad Buying though, this strikes me as both market failure and a failure of procurement strategy. When we look at which services can most sensibly be outsourced, we should consider factors such as:

  • Are the services strategically critical for our organisation?
  • Is there a healthy, dynamic market out there to buy from, open to new entrants?
  • Could we move our business between suppliers or back in-house if we needed too?
  • Will there be a reasonable power balance between us and our suppliers, enabling us to exert  some negotiation leverage?

If we carried out this analysis on these services, I’d argue that this is basically not a suitable spend category to outsource. It is very sensitive, it is difficult to switch suppliers, with limited supply in some parts of the country. Once a child is being cared for, the provider has the upper hand in negotiations, as changing suppliers is difficult.  

I don’t know whether there has ever been a national procurement strategy here, or whether every council has developed its own. I suspect the current situation has just evolved, and now we have the taxpayer spending £500,000 a year per child in some cases, and not even being sure the service is up to scratch.

There is also a market study into children’s social care provision underway, led by the Competition and Markets Authority (CMA). Maybe that – as well as the MacAlister review – will lead to a new approach to the procurement issues around children’s care. This really does need some serious thought and a national strategy. That doesn’t necessarily mean big national contracts, I would add, but it does need considering strategically, rather than dozens of individual councils trying to do their best individually.

One of the first disasters of the current Covid crisis in the UK was the transfer of thousands of people out of hospitals into nursing and care homes, without checks as to whether they had the virus. That put the focus again on the social care sector, and although most of the staff in homes have conducted themselves with great dedication and bravery since then, many issues remain.

I wrote an article on the topic some 5 years ago – here is an excerpt.

What market presents the biggest single challenge in public sector procurement? It has to be Social Care. A spend category worth some £20 billion a year in terms of local authority third-party spend. A category almost totally outsourced now, where funding is being cut by local authorities as their grants from central government are slashed. That is causing a reduction in supply, which in turn is driving severe problems for the NHS as record numbers of ”bed-blockers” are stuck in hospitals because of the lack of a social care-supported  alternative at home. A market where major providers have gone bust and more are teetering on the brink, with the vultures of private equity waiting in the wings.

Since then , we’ve seen more major providers going bust, and yes, the private equity firms have moved into the sector. Many homes rip off their privately paying residents, charging them far more than they charge those funded by councils who use their negotiating power to beat down prices. Meanwhile, too many staff are badly paid, staff turnover is high, and the quality of care is variable.

But these issues are not restricted to just the UK. In the Observer yesterday, Will Hutton wrote about the private equity sector in general and the care home issue in particular. He described the tragic death in a home in Spain of an 84 year old man, Zoilo Patiño, whose body was found in a locked room 24 hours after he died.

“The subsequent investigation into the management company – DomusVi, which had been contracted to operate the home – showed it had been stripped down to a “fast-food version” of healthcare by years of cuts: there was only one care worker for every 10 residents, with not even the PPE to help cope with a dead body”.

But DomusVi, Spain’s largest care home operator, is actually owned by ICG, a British private equity company. As is usually the way with private equity, the company was refinanced and is loaded up with debt – that leverage being one key way in which private equity makes its money. Stripping out costs, or “increasing efficiency” if we’re being kind, is another route often followed. For instance, Hutton claims that Care UK, backed by Bridgepoint private equity, has reduced staff numbers by a third while doubling the number of beds provided in the homes it operates.

Social care services, including care and nursing home provision, are bought by dozens of local authorities around the UK.  Many do a good job in a difficult situation, but this is a spend category that really cries out for some serious national thinking and strategy. We need to ask whether this is a suitable sector for private equity investment; whether there should be more scrutiny of the financial state of providers; what minimum standards might be imposed; and perhaps how to encourage more local, third sector and diverse suppliers into the market – as well as sorting out the funding of care, which is an issue that goes well beyond procurement.  

But the UK central government has never shown any appetite for this sort of involvement on the procurement front. This is in effect, national “Bad Buying” by omission. Whilst over the years, huge amounts of effort, skill and money have been spent putting together strategies and collaborative approaches to buying stationery (!), energy, cars or laptops, OGC, CCS, YPO and all the other collaborative bodies have shied away from social care, as have the strategists in Cabinet Office, the Department for Local Government (whatever it is called this week) or Treasury. 

Perhaps the promise of a new approach to social care funding will provoke some serious action on the procurement and market side as well. We can only hope so.