UK Archives - Bad Buying

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.

The Guardian newspaper reported yesterday: “Ministers are considering renationalising the entire probation service in England and Wales, the Guardian understands, in the latest twist in a long-running saga to unwind Chris Grayling’s disastrous changes to the sector”.

You may not be surprised by that, or shocked to learn that the probation services outsourcing is a case study in my forthcoming book, Bad Buying – How Organisations Waste Billions Through Failures, Frauds and F**k-ups.

The analysis sits in a chapter that looks at failures caused by the buyer failing to understand a market or markets. Or, as in this case, having a foolish belief that entirely new markets can be created by sheer willpower – and throwing some government cash at the private sector, of course.

A bit of history first. The UK government decided in 2013 to outsource much of its probation services work, despite warnings from the well-respected Institute of Government that it would be “highly problematic”. The work included the management and rehabilitation of offenders, combining an element of punishment, such as monitoring the conditions of prisoners’ release, with the desire to reduce re-offending and help the offender make a useful contribution to society.

The UK Ministry of Justice, then under the command of minister Chris Grayling (who, you may also not be surprised to learn, crops up several times in my book), created 21 Community Rehabilitation Companies (CRCs) to manage offenders who posed low or medium risk. In February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts that were to run to 2021-22.

But the implementation was rushed, there was little of the innovation that was promised from suppliers and 19 of the 21 companies ultimately involved failed to meet targets for reducing the frequency of re-offending. In July 2018, the Ministry announced it would terminate its contracts with CRCs 14 months early, in December 2020.

Suppliers didn’t do well either. The National Audit Office estimated cumulative losses of £294M for the firms if contracts continued to the end date, and Working Links, one of the providers, collapsed into administration in February 2019. Finally, David Gaulke, by now the Minister in charge, announced in May 2019 that the contracts would not be offered to private firms.

Most probation services were in effect re-nationalised after one of the highest profile UK public sector buying failuresin recent years. At that point, some minor services such as the provision of unpaid work and accredited programmes were to be offered up to the private and voluntary sectors. But that now appears to have been abandoned too.

There were clearly many problems here, but fundamental is the issue of an entirely new “market” being created, without real understanding upfront of what the work involved, what capabilities would be needed by the winning firms, how the right commercial models would be constituted or how competition could be maintained and stimulated.

“If you build it, he will come”, the tagline from the legendary film Field of Dreams, seems to be how some governments think when it comes to creating markets. And generally, some entities will emerge from the undergrowth, bidding to carry out pretty much whatever government asks them to – drawn by the potential rewards, of course. But this does not create vibrant, sustainable, successful markets in itself.

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The Chris Grayling Probation Services Farewell Tour Rumbles On ….