The coalition wants more public services to be provided by businesses and charities – but what if service quality collapses or contractors go bust? Joshua Chambers explores civil servants' duty to produce continuity regimes.
Southern Cross Healthcare plc used to run care homes that housed 31,000 elderly residents. When the company faced the threat of administration earlier this year, those residents suddenly faced the possibility of homelessness. And most care home residents are not able to relocate easily: they are frail and vulnerable, and some have complex physical and mental care requirements.
Although Southern Cross was a private company, its potential collapse was a huge headache for the public sector: many of its residents were funded by local authorities and the NHS, which were left picking up the pieces. And the potential of insolvency also alerted the British public to some of the risks around contracting-out public services, generating an enormous amount of media coverage and putting pressure on ministers to intervene.
Nonetheless, if the coalition realises its ambitions then in future many more of our public service providers will be subject to the risks of life outside the public sector. And according to prime minister David Cameron, this should not be seen as a bad thing. His vision of public service delivery, as set out last month in the Open Public Services white paper, is one of far more diverse service provision, with private companies, charities and social enterprises taking a far bigger role alongside public bodies. That, inescapably, increases the chances that public service providers will go under.
Cameron has explicitly recognised that diversifying provision brings new risks. Responding to a question posed by CSW at the launch of the white paper, he said: “If we really want to see diversity, choice and competition, we have to take some risks… and recognise that, rather like in business, when you have a failure, that doesn’t necessarily mean the civil service has done a disastrous job.”
The need for continuity
Nonetheless, while intelligent risk-taking is being encouraged, this must be balanced by sturdy plans to ensure that service users are protected when a provider goes under or its service quality dips dangerously.
In order to ensure continuity of service and a delivery model which provides value for money, the white paper envisages that civil servants will regulate markets of competitive suppliers, and create ‘continuity regimes’ which provide a backup plan in case things go wrong. The public services programme director at the Institute for Government, Tom Gash, explains that “a continuity regime is not about ending failure, but ensuring that for essential services the end user does not suffer excessively as a result of a service provider failing”.
A Cabinet Office spokesperson told CSW that these regimes will be developed “on a service-by-service basis”. However, the white paper does say that continuity regimes must encompass six over-arching principles, set out below.
Accountability
The first principle is that “accountability for providing quality services and good financial management should remain firmly with the provider”. This means that delivery companies will need to have plans in place to ensure that, no matter what problems assail them, the services will continue.
But who will be checking up on these companies to ensure that they have appropriate safeguards in place? It certainly won’t be Parliament, says the chair of the public accounts committee (PAC), Margaret Hodge. “It’s absurd to think that Parliament, through PAC, can hold providers to account,” she says. “We already have a situation where foundation hospitals are directly accountable to Parliament – but as they grow, the idea that you have 150, 170 hospital trusts queuing in the corridor [for discussions] about their value for money, for which they’re directly accountable, is patently absurd.” Therefore, her committee has clearly said that accounting officers are “personally and ultimately responsible to Parliament for the spending of taxpayers’ money”.
One permanent secretary recently told CSW that this will make delivery of the white paper very difficult, as it will be almost impossible for an accounting officer to constantly monitor the financial health and service quality of every single independent provider – especially as civil service numbers decline. Nonetheless, in September a working group of permanent secretaries will appear in front of PAC to deliver their findings on localism and the civil service – a piece of work likely to include thoughts on how departments can effectively monitor and regulate independent service providers.
Indeed, one department has already put in place a system of independent service provision which transfers accountability to providers. The Department for Work and Pensions (DWP) recently launched its Work Programme, the flagship employment support scheme for the long-term unemployed. Rob Wormald, who until March was the head of strategic market development at the DWP and led the contracting part of the Work Programme, explains that the department looked for a better way of ensuring continuity of provision after a major supplier went bust in 2006.
The Work Programme has a regulated market set up to ensure that successful providers can take over from failing organisations. Delivery is split on a regional basis, and in each area two large contractors are hired to manage the performance of the service – ensuring that one can take over from the other in the event of a prime contractor failure, Wormald says. He adds that these contractors subcontract much of the work to smaller contractors, and so take ultimate responsibility for maintaining services if those subcontractors fail.
Sean Williams is managing director of G4S Welfare to Work, one of the prime contractors delivering the Work Programme. “The best continuity [plan] we’ve got is diversity of provision,” Williams says. “In any area, we’ve got ten core subcontractors – so if six of them went to the wall, we’ve still got provision there for jobseekers.” Further, “If a business went under because of financial concerns, or if one of our subcontractors is not able to hit our very demanding performance targets, then quite simply we have the ability to get rid of them because we have a diverse marketplace where there are other people able to come in and take their place.”
Independent regulators
The second principle is that “there is a role for external bodies, independent of government (such as regulators), with powers to ensure proper financial management (including financial robustness where appropriate) and to intervene to ensure continuity of service”.
It is clear that many regulators do not yet have those powers and responsibilities. In the case of Southern Cross, for example, the regulator and its charges are at odds over how closely it should be scrutinising the finances and accounts of care home providers.
Martin Green, chief executive of the English Community Care Association – the representative group for independent care providers – says the case of Southern Cross has revealed problems within regulator the Care Quality Commission (CQC), which “has within its remit the responsibility for ensuring that it’s a robust and sustainable business model – and I don’t think the regulator has pursued that very well”.
However, a spokesperson for the Care Quality Commission interprets its role as that of fostering a viable market, rather than keeping tabs on all the care providers’ finances. “We don’t have powers or expertise to investigate or regulate complex company financial structures,” says a spokesperson. “We’d welcome the expansion of [foundation hospitals regulator] Monitor’s remit to include responsibility for looking at underpinning financial models in healthcare.”
This disagreement over the role of the CQC highlights the need for regulators and government to clearly communicate their roles to all concerned parties, and to highlight gaps in scrutiny where they occur.
Monitoring performance
Departments and regulators must be able to spot providers’ quality and cashflow problems before they’re too serious. The third principle is, then, that continuity regimes should “articulate a short, carefully selected list of existing data that will be used to identify failure”.
Hodge believes that each department should set out its own framework of transparency over service data. But she also argues that departments shouldn’t believe that publication of data alone will help them to identify failure. “Transparency, while good of itself, is not sufficient,” she says. Instead, Hodge argues that departments must retain “the expertise and analytical capability to ensure real value for money”.
Each sector will have different benchmarks, but there are some common data types that can prove useful in monitoring performance. Green says that staff turnover is one useful measurement of a company’s performance: “If you’re in an organisation and you get wind of the fact that it is failing miserably, one of the things you might do is facilitate your exit.” In fact, the whole social care sector has a high turnover – but Green argues that it is particularly important to “have an eye on [turnover within] organisational leadership”. In the case of Southern Cross, the chairman, chief executive, finance director and chief operating officer all sold their entire stakes in the company in 2007.
At G4S, explains Williams, all subcontractors are required to use a common IT system: this enables G4S to monitor their performance in real-time, and to investigate when alarm bells sound. The system allows assessment of “the hard numbers – like how many people have started jobs every week; how many people have dropped out of jobs; how many people have got to three months in employment, six months in employment, a year in employment?”
As for G4S itself, Wormald points out that the prime contractor’s accounts are scrutinised by DWP on a monthly basis.
Support
Of course, the government does not want any provider to fail. The fourth principle of continuity regimes is that “struggling organisations should be given support to turn around poor performance within agreed timescales, before failure occurs.”
Williams says: “Sometimes people think failure is a binary event: suddenly, a business falls over or there’s underperformance. But actually that’s a process.” G4S tracks subcontractors’ performance, he says, and if an organisation is underperforming, G4S redirects referrals to another subcontractor. This “gives them time to get back on their feet”, he says, “but gives other jobseekers to organisations which are performing”.
Nonetheless, departments will have to ensure that they have the skills and capacity to get their hands dirty if such preventive regimes fail and a provider collapses. While the government failed to avert the failure of Southern Cross, it has at least avoided the human and PR disaster of seeing elderly service users suddenly rendered homeless. Green praises senior staff in the Department of Health – particularly the director-general of social care, David Behan – for remaining in constant communication with the companies stepping in to take over Southern Cross’s work. In such circumstances, says Green, you need “good people who work very cooperatively together”. And they need to know the system: Green points out that Behan has a long history of working in public sector social care, and started his career working on the front line for a local authority.
Responsibility
Sometimes, service failures are due to poor management: for example, then-prime minister Gordon Brown blamed the managers of Mid-Staffordshire NHS Trust for its disastrous collapse in standards. So the fifth principle is that “where service failure occurs and is the result of poor management, there should be severe consequences for management and others involved in the governance of the provider”.
Green says that this position already exists as a point of law in the social care sector. As an example, he cites a case where the chief executive of BUPA care homes was sued when a patient fell out of a hoist. And there are other examples. Dan Corry, now head of economics at FTI Consulting, worked for transport minister Stephen Byers during the collapse of Railtrack, and explains that “what you want to happen, ideally, is for the shareholders to take the blame if a firm’s gone bust”. In the case of Railtrack, of course, the shareholders did take a big hit when the government stepped in.
However, the difficulty with this overarching principle is that legal responsibility for failure falls on different people in different sectors, depending on the laws that govern them. Elizabeth Cooper, a partner at corporate law firm Nabarro, warns that “the devil will be in the detail”. She explains that civil servants will need to be absolutely clear “what power they are relying on to enter into those arrangements” and to know “what contractual and governance mechanisms are being put in place, and where the responsibility for success or failure is going to lie”.
Flexibility
The final principle requires that “systems should be flexible to accommodate the changes our open public services reforms will bring, and so government departments should set out the long-term vision for ensuring continuity of service”. It is not entirely clear what this means – and the Cabinet Office could not elucidate before CSW went to press – but it seems to suggest that officials should ensure that markets will be open to new providers and changing rules; to mitigate against very long commitments or contracts; and to require an over-arching plan or vision for service continuity, designed to govern all the players involved.
Even without this last principle, the tasks facing civil servants look challenging and will require new skills. The IfG’s Gash says that achieving an effective market will be “complex and requires an effective market-development strategy”; in particular, he highlights “strong commissioning skills”. He suggests that the government should run a small state operator in each area, improving its knowledge of that market.
Corry adds that financial skills will become more important. At the Department for Transport there were “lots of experts on transport, but we didn’t have a lot of people who were experts on company finance,” he recalls. “If you do more of this, you’ll have to have more people who do understand finance”.
Cabinet Office officials have also highlighted the skills gap. Speaking at Civil Service Live last month, the crown representative for SMEs, Stephen Allott, said: “Traditionally, during a [commissioning process] you ask for the last few years of accounts – but do the people who look at those accounts actually know how to judge from those what the likely insolvency risk of that supplier is? I’m a trained financial analyst, and I find it pretty hard. Are we qualified to really judge risk?”
A changed landscape
What’s more, it won’t just be civil servants who require new aptitudes or attitudes; ministers will also have to change their approach. One civil servant said to Cabinet Office minister Francis Maude at Civil Service Live that “I’ve never in 15 years had a minister say: ‘I’m prepared to take a risk, and I won’t turn around and look for somebody to blame,’ so I’m just interested in how much effort is going into changing the culture of ministers alongside changing the culture of the civil service?” Maude replied: “We do need to change expectations among ministers, in Parliament, and the media.”
The changes envisaged by the government will clearly increase the risks facing the public sector, and the chances of a service provider failing. Of course, it’s hard to know how far the reforms will go: as Gash says, “the white paper by itself will achieve nothing. What matters is how national and local departments, private and voluntary sector service providers, and citizens respond to the challenges laid out in the document.”
However, it’s clear – both from the white paper, and from Margaret Hodge’s comments – that the ultimate responsibility for watching for and reacting to provider failures will remain firmly with civil servants. Ultimately, it will fall to accounting officers to ensure that there are systems in place, ready to pick up the pieces.