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SECTION 9 Competitive Tendering of Prisons Introduction Competitive tendering refers to the process of inviting a number of organisations to prepare proposals to deliver a particular good or service, and subsequently evaluating these proposals against criteria such as price and quality. This case study examines the introduction of competition to prison services in the UK through contracting out and market testing, two different types of competitive tendering. Competition was first introduced to prison services in 1991 by contracting out the management of a new prison centre to a private sector provider through competitive tender. Since 1994, the scope for private sector involvement has been extended to include the design, construction and finance of new prisons. In 2001, market testing was introduced for underperforming publicly managed prisons. 63 The competitive tendering of prison services provides an example of how to manage outsourcing in situations where the quality of the service, as opposed to price alone, is also important and not readily observed. In this case study, we first provide a background description of the market, including supply and demand conditions. We then discuss the perceived failings that led to the introduction of a market-based mechanism, and why the particular marketbased mechanism was chosen. The next section examines the potential problems with this market mechanism and how these problems were addressed. In the final section we provide an overall assessment of the policy. This case study draws on the following sources: ● an interview with David Kent, Head of the Office of Contracts and Competitions at the National Offender Management Service (NOMS); ● the CBI report on the effects of competition in the prison service; 64 ● the National Audit Office (NAO) report on the operational performance of private prisons; 65 ● a case study by •econ assessing the impact of prison service procurement on competition; 66 63 Under ‘market testing’ the management of existing prisons is placed out to competitive tender and bids are invited from the current team and from outside suppliers. This differs from the initial contracts which were for new rather than existing prisons. 64 CBI (2003), Competition: a catalyst for change in the prison service. A decade of improvement, available at http://www.gslglobal.com/downloads/CBI_report.pdf. 65 National Audit Office (2003) The Operational Performance of PFI Prisons, London: The Stationery Office, available at http://www.nao.org.uk/publications/nao_reports/02-03/0203700.pdf. 66 Econ (2004), Assessing the impact of public sector procurement on competition, Volume 2: case studies, Prepared for the Office of Fair Trading. 74
● the Green and White papers behind the introduction of the policy; 67 ● the Competition Commission report on the acquisition by Group 4 Falck (Group 4) of The Wackenhut Corporation (TWC) in 2002; 68 and ● an interview with a Director of Business Development at an operator of several private prisons. Market Background Section 9 – Competitive Tendering of Prisons The market in this case study is the building and management of prisons designed for the custody and rehabilitation of adults convicted of criminal offences, which we call ‘prison services’. The public sector is the only buyer of prison services in the UK, and purchases these through Her Majesty’s Prison Service (HMPS) in England and Wales, the Scottish Prison Service (SPS) in Scotland and the Northern Ireland Prison Service (NIPS). Because there is only one privately run prison currently operating in Scotland, 69 and no prison centres in Northern Ireland have been contracted out to date, this study focuses on HMPS and the market for prison services in England and Wales. Procurement of prison services in England and Wales can be for: ● Management-Only (MO) contracts. These are contracts for the management of newly-built, re-built or existing prisons; or ● Design, Construction, Management and Finance (DCMF) contracts. These are integrated contracts for the provision and management of new prisons, including their design, construction, management and finance. There have been no contracts to date in which the design, construction and finance elements were tendered separately from the management component. The Prison Service considers such contracts unlikely as the design of a prison can make it much easier to run. In particular, modern prisons are designed to accommodate more recreational and educational facilities than are available in Victorian prisons. This approach leads to synergies in design and management. Each prison under private management is appointed its own controller, who confirms the number of prisoner places available and monitors the operation of the centre. The Chief Executive of the National Offender Management Service 67 Green Paper (1988) Private Sector Involvement in the Remand System, Cm 434, London: The Stationery Office; and White Paper (1990) Crime, Justice and Protecting the Public, Cm 965, London: The Stationery Office. 68 Competition Commission (2002) Group 4 Falck A/S and The Wackenhut Corporation: A report on the merger situation, available at http://www.competition-commission.org.uk/rep_pub/reports/2002/471group4.htm. 69 The reconstruction of a public sector prison, Low Moss, is also underway in Scotland. 75
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DTI ECONOMICS PAPER NO.14 Public Po
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DTI ECONOMICS PAPER NO.14 Public Po
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Contents Acknowledgements vi Forewo
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Contents Section 11 Emissions Tradi
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Foreword There is increasing intere
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SECTION 1 Introduction and summary
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Public Policy: Using Market-Based A
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SECTION 2 Using market mechanisms U
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SECTION 3 Lessons for the design an
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Page 40 and 41: SECTION 4 Introduction This part of
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Page 91 and 92: detect any deviation from a collusi
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Page 95 and 96: (e.g. lighting). This impact could
Page 97 and 98: MARKET POWER The full benefits of c
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Page 103 and 104: Controlling for problems of asymmet
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Page 117 and 118: design the invitation to tender and
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Once the outcome is determined, fee
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DEVELOPMENTS OVER TIME The major mo
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Concerns about capacity constraints
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from those already located within t
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In several areas, registrations by
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Controlling for information problem
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extent though, it was competition b
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Section 10 - Choice-Based Letting i
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levels are reducing and new tenants
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desired effect of limiting points-c
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efficiency savings in some areas. T
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SECTION 11 Emissions Trading Introd
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Section 11 - Emissions Trading coex
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Section 11 - Emissions Trading emis
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A more detailed and diagrammatic de
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The costs of monitoring and reporti
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INITIAL ALLOCATION OF PROPERTY RIGH
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only 242 in the second year. The di
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COST-EFFICIENT EMISSIONS REDUCTIONS
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consultants to Defra of £11 per to
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Participation has helped us to rais
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Section 11 - Emissions Trading emis
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SECTION 12 Issues in the implementa
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