NAO criticises outsourcing contracts at probation service

In a highly critical review of progress on Ministry of Justice (MoJ) reforms to the probation service, the National Audit Office has slammed its ineffective contracts with outsourcing suppliers

The NAO says this has hampered the department’s ability to hold providers to account for poor services and will see it pay at least £467m more than planned.

In 2013, the MoJ created community rehabilitation companies (CRCs) to manage low or medium risk offenders and the national probation service (NPS) to manage those posing higher risks. It amended its contracts with CRCs in 2017 to increase their income and stabilise failing services, but in July 2018 the ministry announced these would be terminated 14 months early, in December 2020.

It designed outcome-based contracts to encourage CRCs to innovate, but this did not fit well with its low risk appetite for failure. As it takes two years for data on reoffending to become available, and changes in reoffending cannot be directly attributed to CRCs’ interventions, its payment by results model was inappropriate for probation services, the NAO said.

The audit watchdog found the ministry designed and implemented its reforms too quickly. It sought to transfer the risk of lower volumes of probation work to CRCs, but only tested the impact of volumes reducing by 2%. Two years into the contracts, volumes were between 16% and 48% lower than anticipated.

Although this meant the ministry was paying less to CRCs, it overestimated their ability to reduce costs as their income fell, which put them under financial pressure and affected their willingness to invest in probation services and their transformation plans.

By March 2018, CRCs faced collective losses of £294m over the life of the contracts, compared to expected profits of £269m.  The NAO said this increased the risk of providers withdrawing services, performance deteriorating further and potentially multiple providers becoming insolvent. Terminating these contracts will cost taxpayers at least £171m.

The MoJ originally expected to pay CRCs up to £3.7bn over the life of the contracts, but by August 2018 it was expecting to pay CRCs £2.3bn through to December 2020 when it ends its contracts.

However, the NAO found that together with its earlier unsuccessful efforts to stabilise CRCs, the ministry will pay at least £467m more than was required under the original contracts. The full costs will not be known until at least December 2020.

The ministry has acted on many of the shortcomings in the reforms, including abandoning payment by results, but the NAO has identified risks with its proposals. These include the need to manage the risks of transitioning to the new contracts and existing providers withdrawing services or failing outright. For example, on 14 February, Working Links, owner of three CRCs, entered administration. Amyas Morse, NAO head, said: ‘The ministry set itself up to fail in how it approached probation reforms. Its rushed roll-out created significant risks that it was unable to manage. These have had far reaching consequences.

‘Not only have these failings been extremely costly for taxpayers, but we have seen the number of people on short sentences recalled to prison skyrocket.

‘It is welcome that the ministry’s proposals address some of the issues that have caused problems, but risks remain. It needs to pause and think carefully about its next steps so that it can get things right this time and improve the quality of probation services.’

Transforming Rehabilitation: Progress review is here.

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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