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Public Policy: Using Market-Based Approaches riot, the contract was terminated (Domberger and Jensen, 1997). 79 Other wellpublicised incidents of poor performance have occurred at private prisons in Colorado, Louisiana, Oregon, South Carolina and Texas. 80 The UK experience has differed to date for two main reasons. Firstly there have been no instances of speculative build prisons. Private firms can enter the market for prison services only by winning a tender for a specific contract. Speculative build prisons in the US have been the most difficult to monitor and regulate. 81 Secondly, the UK has devoted a significant amount of resources to contract specification, monitoring and enforcement. Where management failures have occurred in the US, they have typically been the result of problems in the contractual framework. DESCRIPTION OF THE MARKET MECHANISM The process for procurement is identical for both MO and DMCF contracts, and between contracting out and market testing. The main dimension in which contracts differ is that of contract duration. DCMF contracts are typically awarded for 25 years and MO contracts and SLAs for 10 years. There are some technical differences in the way a DCMF contract is drawn up, reflecting the complexity of the contract, which must cover the construction of the prison. DCMF contracts are made between NOMS and a Special Purpose Vehicle, a type of holding company in which the construction company, architect, operating company and finance provider all have a stake. All operating risk is passed to the operating company through a sub-contract between the SPV and the operating company, so that, in practice, all negotiations pertaining to contract enforcement occur between the operating company and NOMS. Tendering out operations Procurement is centralised and conducted by the NOMS Commercial and Competitions Unit, working closely with the Office of Government Commerce. HMPS publishes an announcement inviting private companies to express an interest. To qualify for bidding, bidders must demonstrate the capability to operate a prison safely, either through a proven track record or related experience, and the capacity to meet necessary financial obligations arising during the contract life. Only bidders who meet these criteria are invited to submit sealed bids. As noted in Part III, the use of sealed bids helps to limit the scope for collusive behaviour amongst potential bidders because this implies that bids are private rather than public information. This means that rival bidders lack information about each other’s bids, and that it is therefore more difficult to 79 Domberger, S. and Jensen, PH (1997) ‘Competitive tendering and contracting out: theory, evidence, prospects’, Oxford Review of Economic Policy 13(4). 80 Austin, J. and Coventry, G, ‘Emerging Issues on Privatized Prisons’, p.59, Bureau of Justice Assistance. 81 Austin, J. and Coventry, G, ‘Emerging Issues on Privatized Prisons’, P.xi, Bureau of Justice Assistance. 82
detect any deviation from a collusive agreement. This reduces the probability that a cheating bidder will be punished, and so makes any agreement more difficult to sustain. Pre-selected bidders are required to specify: ● the plans for the design and construction of the centre (if a PFI contract); ● any plans for renovation/maintenance/repair; ● plans for operating the prison (including staff involved, how the centre will be organised and how prisoners will be managed); and ● the cost of providing the service. 82 Bids are then evaluated qualitatively and by means of a score based on an assessment of individual criteria. The bid evaluation process assesses deliverability, price and quality. Innovation has recently been added to these criteria. Subject to considering that the bidder is able to deliver the service, the quality and innovativeness of bids is assessed using a complex matrix marking. This score is used to adjust the price of the bid to reflect the quality of service being proposed, and the contract is then offered to the bid with the lowest quality-adjusted price. Details of the weighting and criteria are made available to bidders in the invitation to tender. This kind of allocation mechanism is known as a weighted beauty contest. 83 For design plans, bid criteria include: ● how many prisoners the centre could support, ● the operational advantages/disadvantages of the design, ● the flexibility of purpose of the centre, ● the likely longevity of the building; and ● the aesthetics of the building. For operational plans, the criteria include: ● security, ● ease of moving prisoners, ● time out of cell for prisoners, ● recreational services, ● educational services, Section 9 – Competitive Tendering of Prisons 82 Specified as the cost per prisoner-place per day 83 A beauty contest is a means of allocating an asset (such as the contract to provide prison services) that involves firms submitting proposals regarding their plans for managing the asset that are then evaluated, typically by a committee, in terms of criteria such as price and quality. A weighted beauty contest is one in which bidders know in advance the criteria against which they will be assessed, and the relative weighting attached to each. 83
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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 50 and 51: SECTION 7 Market-Based Mechanisms W
Page 78 and 79: SECTION 8 Framework for assessing m
Page 81 and 82: Part IV Case Studies 73
Page 83 and 84: ● the Green and White papers behi
Page 85 and 86: A prison failing to deliver on its
Page 87 and 88: Table 9.3 Companies providing priso
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Page 93 and 94: at HMPS began as an equal mix of th
Page 95 and 96: (e.g. lighting). This impact could
Page 97 and 98: MARKET POWER The full benefits of c
Page 99 and 100: However, it should be noted that te
Page 101 and 102: on competition is uncertain. The ab
Page 103 and 104: Controlling for problems of asymmet
Page 105 and 106: Procurement process design One way
Page 107 and 108: however, financial deductions are m
Page 109 and 110: Section 9 - Competitive Tendering o
Page 111 and 112: The Independent Monitoring Board at
Page 113 and 114: Figure 9.1: Difference between the
Page 115 and 116: ‘While there were staff in the pu
Page 117 and 118: design the invitation to tender and
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Page 121 and 122: and demand conditions. Second, we d
Page 123 and 124: DEMAND Anyone can apply to a local
Page 125 and 126: ● Rent deposit guarantee by the l
Page 127 and 128: The Green Paper stated the Governme
Page 129 and 130: It was not an objective of ODPM or
Page 131 and 132: DESCRIPTION OF MARKET MECHANISM The
Page 133 and 134: Once the outcome is determined, fee
Page 135 and 136: DEVELOPMENTS OVER TIME The major mo
Page 137 and 138: Concerns about capacity constraints
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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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