Analysis: 'A step in the right direction' on probation service contracts

Ministers have praised the work charities do to rehabilitate offenders. But will the proposed new contracts for probation work be within the reach of charities? David Ainsworth asks the sector for its views on the proposals

Through the prison gate: charities and probation services
Through the prison gate: charities and probation services
  • Read supporting articles on the detail of the proposals and on the private sector recruiting staff from criminal justice charities

Recent proposals by the Ministry of Justice to outsource most probation services have been greeted with guarded optimism by charities. Most feel that the proposals are likely to offer better opportunities for the sector to win contracts than the Work Programme, which began with high expectations but has proved a disappointment.

Rob Owen, chief executive of the St Giles Trust, the offender rehabilitation and mentoring charity, says the proposals open up new areas of work. "Until now, there hasn't even been a playing field for the sector to play on," he says. "So this is a giant step in the right direction."

Ruth Breidenbach-Roe, a policy officer at the National Council for Voluntary Organisations, says it is encouraging that the MoJ has listened to the sector and changed some of its proposals in the light of responses to its consultation document earlier this year. "Its engagement with the sector has been positive," she says. "From the start, it has wanted the sector to be involved and has made some changes to help that happen."

But the sector still has problems with some of the proposals. The prime contracts are generally considered too large for sector organisations to bid for; charities feel the payment-by-results element of contracts might be too risky and based on the wrong metrics; and there are still questions over whether there is enough protection for smaller charities in contracts and subcontracts.

Andrew Neilson, director of campaigns at the Howard League for Penal Reform, feels the entire process is misguided, risky and potentially unworkable. "The MoJ wants to drive down costs, improve quality and introduce a new system, all at the same time, on a very tight timetable," he says. "It's an ambitious political project and they have bitten off more than they can chew."

He predicts that the reforms will end up like the Work Programme: "We are going to end up worse off - and to make it even worse, we will have missed an opportunity to make it better."

Prime contracts

One of the biggest issues for charities is whether they can win prime contracts. Breidenbach-Roe says the size of the contracts make them a difficult proposition. "The government made concessions on the size of contracts, but they're still larger than the old probation trust areas," she says. "I wouldn't say the situation was a win for the sector."

Clive Martin, director of ClinksClive Martin (right), director of Clinks, the umbrella body for criminal justice charities, says there is now at least the possibility of some voluntary sector primes. "It remains very ambitious, but I wouldn't write it off," he says.

Martin says success will depend on how the government structures the contracts. He says he is not yet convinced that it will design a structure likely to lead to voluntary sector primes. "The rhetoric has moved in the right direction," he says. "But there's a long history of good rhetoric followed by bad policy-making."

He argues that the procurement process should focus less on the balance sheet and financial track record of applicants and more on allowing providers to demonstrate their expertise, and should look favourably on alternative structures such as consortia. "If the government is serious about wanting the sector to build consortia to win these contracts, the sector will build them," he says. "There's a real enthusiasm in the sector to do so."

Ideally, the social finance market would provide the finance for such consortia. But Martin says it would have to provide significant sums and manage a lot of risk - much more than it has supplied for previous deals, such as the social impact bond being piloted at HM Prison Peterborough.

Some larger criminal justice charities are still deciding whether they will try to win prime contracts. Graham Beech, strategic development director at Nacro, the crime-reduction organisation, says his charity has the capability. It has been delivering payment-by-results contracts for some years, understands the risks involved and already operates at least one contract of a size similar to the smaller probation service areas. But he says it is too early to say whether Nacro will bid by itself, with partners, or not at all. If it does team up with other organisations, it isn't yet clear whether those will be private or voluntary sector organisations, or both.

Colin Murphy, director of justice at Catch22, the crime-reduction charity, says it is also weighing up its options. Like Martin, he expects voluntary sector bodies to set up consortia in an attempt to win contracts, but says they will need to prove they have the strength to bear the risk. Any sector organisation bidding for a prime contract will also need expertise in bidding for and managing large government contracts. Traditionally, he says, Catch22 has derived much of this expertise from a long-standing partnership with Serco, the services company. But he says charities would be on stronger ground if there were sector organisations that could provide such skills.

Payment by results

Sector organisations are similarly cautious about the payment-by-results proposals the government has put forward. Owen says that the government has learned many lessons from the Work Programme, there has been more thought about how to work with harder-to-help individuals and there is "a whole team of civil servants working hard to avoid creating perverse incentives".

Martin says he is pleased that the MoJ has changed its mind about how it will structure the payment-by-results element of the contracts. "It's pleasing that a frequency measure will be introduced alongside the binary measure," he says (see "Payment mechanism" in story below). "But we need more information before we can feel confident about how well these proposals will suit the sector. The devil is in the detail. We haven't seen a lot of detail, so these contracts could still end up with a lot of devil."

Small charities and supply chains

There are also concerns about how the probation service contracts will work in practice. "There's still a lack of data about the issue of primes and the subcontractors further down the supply chain," says Martin. "A lot of how that relationship will work still seems to be down to the prime and the sector organisation."

The problem is growing worse for small charities, he says, because other sources of income are drying up. "Grants are disappearing," he says. "Work will be funded more and more by contracts. That means contracts will have to be well-designed."

Martin says there is a danger that many charities will end up as tier-three contractors, used only sporadically for the spot-purchase of services. If that happens, he says, the contracting system will not have succeeded.

He also says the focus on probation as the main procurement area could lead to problems for charities working elsewhere in criminal justice - for example, those that receive funding to help stop people committing crimes. It would be unfortunate if contracts aimed at early intervention caused funding for these activities to dry up, he says.

Neilson of the Howard League is also concerned about smaller organisations. Although the likes of Nacro and Catch 22 can partner with large private providers to win prime contracts, he says, smaller charities and beneficiaries might suffer.

Charities involved in the new contracts will have to deliver statutory services, he says, which will require them to work with people "who don't want to be beneficiaries" - which many charities are reluctant to do.

Neilson points out that the reforms will extend services to short-term prisoners who currently receive no help, but there will no corresponding extension in funding. As a result, charities will be asked to do more with less. "It also extends people's contact with the system," he says. "Someone who has been in prison for two weeks will now be caught up in the system for a year."

He says that new private sector primes might not have the commissioning skills to bring together stakeholders - including government, local authorities, prison services and small charities - to deliver what is needed.

"All the previous pilots have been about innovative commissioning, not innovative service delivery," Neilson says. "They have been about allowing commissioners to work with multiple stakeholders to deliver what works. We all know what works in reducing reoffending. It's a question of whether this new system will allow charities to do it."


What's in the proposals? Contract size, payment methods and partnership arrangements are the likely sticking points for the voluntary sector

The government is legislating to extend statutory supervision and rehabilitation in the community to offenders sentenced to less than 12 months in custody - a move it has described "a revolution in the way we manage offenders".

This will bring about 50,000 of the most prolific offenders into the remit of a new National Probation Service, which will place contracts with providers from the public, private and voluntary sectors. In total, the contracts will cover 265,000 low and medium-risk offenders.

The document Transforming Rehabilitation: A Strategy for Reform, published by the government last month, sets out the provisions that are summarised here.

Contracts

Chris Grayling, the Secretary of State for JusticeChris Grayling (right), the Secretary of State for Justice, has said he wants large contract areas because they will be cheaper and easier to administer. He wants them to be geographically large so that few ex-offenders will move from one area to another. He also wants them, where possible, to share boundaries with police areas and Work Programme areas. Fewer contracts also allows for more centralised control.

There are currently 35 probation trusts, run by the National Offender Management Service. In the original consultation on rehabilitation reforms, Grayling proposed replacing these with 16 new prime provider areas, but sector bodies and others raised concerns about the increased size and the MoJ has responded by creating 21 contract areas instead. Some smaller areas are included expressly to help smaller providers win more contracts.

The smallest contract areas will involve supporting about 6,000 offenders; the largest, London, has 33,000. The MoJ cannot confirm how much it spends on each low and medium-risk offender, but it is estimated to be about £2,000 a year. This suggests that the smallest contracts could be worth about £12m a year. The MoJ also appears to favour an approach that will help charitable consortia and public sector mutuals to win probation contracts. In Transforming Rehabilitation, it says it will "design a competition process that allows a range of different kinds of entities to be able to bid to deliver services".

Payment mechanism

The proposed contracts will not use a 100 per cent payment-by-results model. Instead they will use a complex formula that includes a "fee for service" element, which will cover the mandatory elements of probation, such as working with prisoners on licence. A payment-by-results element will be offered for reducing reoffending, but it is likely to be only a relatively small amount of the contract. There will also be a mechanism for clawing back funds from underperforming contractors.

The payment-by-results feature will be sub-divided into "binary" and "frequency" elements. For a provider to get paid, a certain number of released offenders must cross a "binary hurdle" by committing no further crimes. But there will also be payment for reducing the cohort's frequency of reoffending. Grayling initially indicated that he favoured a purely binary model, and this is still the stronger element in determining payment. However, the introduction of the "frequency" element is a step in the right direction for charities that tend to work with more prolific offenders. Because these offenders have committed more offences, helping them to reduce the number of crimes they commit could bring a large reward. But such offenders tend to be the hardest people to help.

The promise of a lucrative payout for working with harder-to-help individuals could help avoid the "creaming and parking" problems of the Work Programme - some prime contractors have been accused of working with people who are more likely to get jobs and passing on more challenging clients to voluntary sector subcontractors.

But charities are concerned they might still end up taking on contracts that carry disproportionate risk. The crime-reduction element of any contract is the part paid by results, and therefore the riskiest part.

It is also the part that is most likely to be delivered by charities. A prime provider might choose to carry out low-risk elements while leaving charities with all of the risks of payment by results.

Smaller charities

Transforming Rehabilitation contains a number of charity-specific measures designed to offer additional support to smaller organisations.

The MoJ has promised measures to reduce the amount of time smaller organisations spend on due diligence and negotiations with primes. It has also said it will require prime contractors to "provide evidence of how they would build and sustain local partnerships with local and community sector organisations".

It will also develop industry-standard contracts and "market stewardship principles" intended to ensure fair treatment for subcontractors and improve transparency when prime contractors transfer financial risk to subcontractors.

In addition, it will examine "how social investment can increase the number and range of organisations with the financial capacity to participate in competition and delivery".

More than £1.5m will be available in various small pots from the MoJ and the Cabinet Office to support the voluntary sector. The money will be spent in a variety of ways, including providing training designed to help charities bid for contracts.


PRIVATE SECTOR PROVIDER RECRUITS CRIMINAL JUSTICE CHARITY CHIEFS

The private sector company Avanta, which has three contracts in the government's Work Programme, has set up a new criminal justice division and employed two former chief executives of the crime-reduction charity Sova to help it prepare to bid for the new Ministry of Justice probation contracts.

Helen CantrellAvanta first recruited Helen Cantrell (right), who led Sova from 2010 until 2012. She left the company two months ago to work for a housing association. Now it has hired Sarah Mallender, who was interim chief executive of Sova from May 2012 until it merged with Crime Reduction Initiatives in November.

"Helen was hired because of her expertise in probation work, and Avanta regards third sector expertise as essential once the scope of these contracts is established," says David MacDougall, head of strategy and development at Avanta. "We are looking for the best people who understand the justice market, and a large proportion of them will probably come from the third sector."

MacDougall says moving into probation work is a natural progression for Avanta because some clients in its Work Programme contracts are ex-offenders.

"We think Avanta can develop a delivery model for probation work in areas where reoffending is high and add real value,"

he says. "MoJ research shows that employability is a primary reason people stop reoffending, so if a person is in employment it's a big reason why they would stop offending."

He says the company wants to know more about the MoJ contracts before saying definitely that it will bid. "We know we have the skills to help ex-offenders, but we don't know enough about the commercial model yet," he says. "There is not enough detail about the payment-by-results component and how much of the contract will be PBR."

Avanta currently holds three regional contracts with the Department for Work & Pensions under the Work Programme - in Greater Manchester, Kent, and Surrey and Sussex - and does not use subcontractors to deliver its services.

Avanta also carries out skills and training work with the Skills Funding Agency and the New Enterprise Allowance, on behalf of Job Centre Plus, to help people set up their own businesses or become self-employed.

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