Public Policy: Using Market-Based Approaches - Department for ...

Procurement process design
One way in which quality can be controlled for, even if contracts are incomplete,
is by making it an explicit part of the process for evaluating bids. Tendering for
a prison management contract takes the form of a beauty contest, with price just
one criterion on which bidders compete. Other criteria related to quality of
service may be assigned equal or greater weight in the decision process and in
many cases the bid accepted is not the lowest price bid.
Contract design and contract monitoring
Section 9 – Competitive Tendering of Prisons
Critics of prison privatisation in the US have pointed to evidence of quality
shading, lending support to the Hart et al. (1997) conclusion that prison service
quality is non-contractible and is therefore likely to suffer from the involvement
of the private sector. Quality shading in the US has been observed particularly in
relation to staffing levels and qualifications. However, the UK experience so far
demonstrates that it is possible to contract for quality if sufficient resources are
devoted to contract design and monitoring. The UK system is now described in
detail below.
The winning bidder taking on management of a prison signed a contract with the
Commissioner for Correctional Services, whose post was replaced by the Chief
Executive of NOMS on 1 June 2004. Each contract sets out the level of service
that contractors are expected to provide, the payment system and the
mechanisms by which the Commissioner/Chief Executive can make financial
deductions for poor performance. Individually negotiated contracts are linked to
a national monitoring system that applies to all prisons, whether privately or
publicly managed. Fifteen Key Performance Indicators (KPIs) measure whether
the Prison Service as a whole is meeting its objectives of protecting the public
and reducing crime. For example, one KPI for 2005/6 is to ensure that the rate of
escapes is less than 0.05 per cent of the average prison population. National KPIs
are supported by 48 Key Performance Targets (KPTs) that measure the
performance of individual prisons against planned activities. Target figures are
agreed on an individual prison basis, and vary according to the nature of the
centre concerned. For example, each prison will agree to keep escapes below an
appropriate level, in order to ensure that the national KPI is achieved. Contracts
have recently been adapted to incorporate the same KPTs that apply to public
prisons, with annual performance measures defined in relation to the
appropriate KPTs. Performance measurement in relation to individual contracts
is addressed in further detail below.
In addition, contractors are obliged to comply with national operational
requirements laid out in primary and secondary legislation, Prison Service
Standards, Prison Service Orders and Prison Service Instructions. Compliance
with these requirements is measured by the Prison Service Standards Audit unit,
which allocates each prison an overall rating of superior, good, acceptable,
deficient or unacceptable on the basis of its visits.
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