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

design the invitation to tender and negotiate bids. Further costs of £500-600k are
incurred in the form of legal advice and financial insurance. In addition, each
prison has its own on-site controller to monitor the quality of service.
Table 9.5
Average total costs per competition
Source: Interview with David Kent, HMPS; interview with private prisons operator.
However, the evidence suggests that these costs have been far outweighed by
the benefits. The CBI reports that the prison service has saved £40-60m per year
as a result of the introduction of competition. 113 Moreover, this measures only the
direct benefits of having more efficient private prisons. Other benefits exist, such
as encouraging greater efficiency and innovation in the public sector. Public
sector comparator estimates computed by HMPS show there are now fewer
savings from using the private sector for the operation of a prison as the public
sector has become more efficient. This finding shows that even opening a
limited portion of a service to competition can have significant benefits for the
parts not directly exposed to competition.
LESSONS FOR OTHER AREAS
Section 9 – Competitive Tendering of Prisons
Source of cost Amount
Design of invitation to tender and negotiation around bids £250k
Legal advice and financial insurance £500k-600k
TOTAL COSTS FOR HMPS PER COMPETITION £750-850k
Legal advice £100k
Financial costs £100k
Building design costs £100k
Asset management costs £70k
Internal costs (including opportunity cost of staff resources) £200k
TOTAL COSTS FOR A BIDDING FIRM PER COMPETITION £570k
We have identified the following lessons that could be relevant to the use of
competitive tendering in other areas.
● Involving the private sector in the provision of public services can lead to
lower service delivery costs and greater innovation. It may also increase
public sector provider efficiency by introducing competition and allowing the
diffusion of innovations. Even when only introduced to a small proportion of
the sector, competition can still help to increase the sector’s overall efficiency.
The performance of public sector prisons has improved since the introduction
of competitive tendering and this improvement is believed to be partly
attributable to the threat of replacement by private prisons.
113 The CBI measure includes operating cost savings in privately-managed prisons and an estimate of savings from
contestability in terms of lower prices for successful in-house bids. It does not include any cost efficiencies in
non-market tested public sector prisons that may have resulted from the diffusion of best practice from the
private sector
109