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Private And Voluntary Sectors Finance Essay

As the prison population reaches an all time high, Britain is faced with the task of constructing more prisons. This would accommodate the increasing numbers of offenders sentenced by the courts, as well as replace our decaying older prisons. The current prison population in England and Wales stands at just under 85,000 [1] . Prison governors, for several years now have been struggling to cope with the rising numbers. The whole system has been put under stress due to the overcrowding. This means that the government, which is encouraging the courts to crack down on repeat offenders, has to build more prisons rapidly. This industry however, is not a cheap one, both constructing the prisons and running them. Other options to try and ease the prison population have been through an increase use of fines, community service orders, electronic monitoring, supervision as well as other means. However with more and more offenders re-offending, prison population still seems to be on the increase.

As a way of easing the impact on the public purse, the government has turned to the private and more recently voluntary sectors in a technique known as privatisation. This option involves a contract with the private or voluntary firms to finance, construct, own, and operate prisons. This option does not conflict with any of the above alternative options; rather it supplements them. Its greatest potential is that of flexibility. It has the culpability to do for prisons what entrepreneurial activity is supposed to do best: anticipate needs and meet them. In response to the space crunch in today’s prisons, commercial, as well as voluntary confinement companies offer an immediate prospect of relatively rapid and efficient increases in overall confinement capacity.

There is big money to be made to those who receive the contracts from the government to run a privatised prison. Competitive Tender can be defined as a method of distributing debt issues. Bids are submitted by primary distributors and those who bid the highest usually receive the debt issue, in this case, a specific prison. In a competitive duel between private sector firms and even public/voluntary firms, bids are made in order to win the contract for the prison. In this essay I will show how this mixed economy of prison service provision, consisting of competitive tender from the public, private and voluntary sectors is in the public interest and is the way forward for our prison system.

What is privatisation?

Privatisation is a process that has become enormously important in Britain, especially since the Conservative governments of the 1980s.

“It is most commonly defined as the transfer of government owned industries to the private sector implying that the predominant share of ownership of asset lies with the private shareholders” [2] 

The initial developments began with the Conservative administration by giving security companies contracts to operate a small number of prisons built by the prison service. It was then under the Labour administration, where a clear preference emerged for building new prisons using the Private Finance Initiative (PFI). These have been issued under the DCMF scheme: they are Designed, Constructed, Managed and Financed by the private sector. The contracts run for 25 years, at the end of which the building becomes the property of the Prison Service.

Competitive Tender

A tender in this case, is a competitive bid for a prison. The government will be looking firms to take charge of a prison; they would then invite firms from the private, voluntary and public sectors to tender for it and will normally choose the most favourable tender. A tender normally amounts simply to an invitation to treat and the government will be free to accept or reject any other responses.

There is no obligation to sell to the highest bidder or indeed to any bidder at all. The position will be different if the invitation indicates that the highest bidder or the lowest quotation as appropriate will definitely be accepted. It will then be regarded as an offer in a unilateral contract. The recipients of the invitation will not bound to reply, but if they do, the one who submits the lowest quotation will be entitled to insist that the contract is made with them. [3] 

The contract usually begins with the acceptance of an offer. An offer is a statement by one party, the government in this case, who identifies terms of an agreement by which it is prepared to be bound and they then must be accepted by the tender. An offer has to be precise and definitive. [4] 

The bidder usually faces a dilemma that the bidder submits a high bid price that the bidder can make a profit, but they lose the job; or the bidder submits a low bid price and gets the job, but they lose the profit. How to find a balance point between the price and the profit? The bidder should provide a perfect estimation of the project cost and overhead. The bidder should also analyse the market, the client, and competitor and themselves and consider the factors that possibly influence the determining bid price. The bidder needs to determine the price policy and business objectives and translate those to a right bid price strategy. Finally the bidder can set the bid price at the balance point between the price and the profit under the right bid price strategy.

Although there are many factors that can decide whether the bid is successful or not, perhaps the bid price makes the largest single contribution. However the government will look at the bidders’ previous experience in the field and study the agreed services that they are willing to provide and at the quoted quality. This competitive tendering, through vigorous competition, can therefore be seen as a way of providing us with better deals, saving the public money and improving standards within prisons.

Operating Contracts

Once the competitive tender is complete, is the successful tender accountable for any problems related to the problem? Have the government freed themselves of accountability? As the government is not under the direct line management of this public sector agency, contracts are used to ensure that an accompanying method of accountability is provided. The operating contracts have the job of ensuring that the agreed services are actually supplied and that this is done to the contracted quality. They are issued to contractors and enable the home office to specify in detail, minimum standards of living conditions, facilities and regime delivery that the contractor has to provide for a monthly fee. Each contract is highly individual and tailored to the specific establishment involved. Breach of the contract can result in termination; however this is usually a severe step. The withholding of a portion of the monthly fee is a more frequent approach to try and encourage the contractor to meet the agreed performance standards. Especially in the private sector in which financial aspects is of great significance, the awareness that one can lose major profits creates a powerful pressure on the private sector to which the public sector has never been subject. Accountability still therefore remains with the government, so whether or not a prison is managed under the private, voluntary and public sector, the government is still liable.

Market testing

Market testing is where bidders from the private, public and voluntary sectors are able to place bids for the prison that is being tested. A prison that is not keeping up with the necessary standards has a possibility of being market tested, in which a new management has the opportunity to turn the place around.

Market testing is usually preferable to benchmarking because it seeks new bids for services from alternative suppliers, rather than simply comparing costs with similar services provided elsewhere. There may, however, be situations where benchmarking should be used, for example where there is insufficient competition to run an effective market testing exercise. [5] Benchmarking is a systematic and continuous measurement process; a process of continuously measuring and comparing prison systems against the prison systems that are seen as the leaders within the country, this information is used to help a specific prison take action to improve its performance. [6] 

The Ministry of Justice launched a competition in late 2009 for the contracts to run five prisons. The public, private and voluntary sectors will be able to bid to manage publicly run prisons Birmingham and Wellingborough- who are being market tested for the first time, as well as a new prison under construction next to Featherstone prison- which requires a new contract to operate and Doncaster and Buckley Hall, where the company’s current contracts are due to expire.

The Ministry’s statement of 16 November noted that NOMS has set up “a Public Sector Bids Unit under a senior prison service manager to lead the development of bids on behalf of public sector prisons and to ensure that the public sector is able to submit a strong competitive bid.” The public sector therefore continues to fight in the competition for the prisons, so long as they can present respectable offers. This mixed economy of prison service provision is thus providing us with a variety of sectors, a chance to pick out the best of the bunch and enabling competition to thrive between them.

How many Private Prisons are there in the UK?

Eleven privately run prisons currently operate within England and Wales. Nine of these have been financed, designed, built and are run by the private sector under PFI contracts, these are; Altcourse, Ashfield, Forest Bank, Parc, Dovegate, Rye Hill, Lowdham Grange, Bronzefield and Peterborough, the country's only dual purpose-built prison for both men and women, who are kept separate at all times. In addition Wolds and Doncaster were initially built and financed by the public sector but are run by private companies under management-only contracts.

11% of the prison population is based in private prisons within England and Wales containing around 9,071 prisoners. England and Wales has the most privatised prison system in Europe. Scotland at this time have 8% of its prisoners held in private prisons, although this has since risen with the construction of the 700-cell Addiewell, a second privately financed, designed, built and run prison. Australia has 17% of its prisoners held in private prisons and the USA has 7.2%.

Private, Public and Voluntary Sectors?

So who make up the voluntary sectors? This area is also known as the “third sector” and is defined by the government as non-governmental organisations that are value-driven and which principally reinvest their financial surpluses to further social, environmental or cultural objectives. A wide variety of organisations make up the third sector, categorised most simply as voluntary and community organisations, social enterprises, and co-operatives and mutuals. [7] Since New Labour came into power there has been an incredible growth of this so called “third sector”.

Charities have provided services inside prisons for many years, often pioneering new ideas and best practice. Drug rehabilitation programmes, skills training, counseling and even stitching quilts are the material of numerous small and national charities working inside prisons across the country.

However critics argue that once charities become involved in management they are responsible for punishment. Private prisons have failed to reduce suicides or violence. Charities would be part of the management team responsible when a death occurs, a murder or a rape. Such a move, according to the critics, distorts any sensible meaning of the term charity.

An article in Charity Finance magazine (12 August 2009) quotes Frances Crook, Chief Executive of the Howard League for Penal Reform:

“Charities would be guilty of making a profit out of locking people up for punishment. It is completely different to providing a drug rehabilitation service under contract to a prison. When running a prison you are managing people who are desperate, unhappy and very vulnerable. There are going to be tragedies and charities will be responsible for them”

The introduction of the third sector brings along with it further competition for the private and public sectors in the bidding for the desired prisons. This is beneficial for the public interest as it gives another dimension to the range of options and expands our views from the parochial.

Positive sides to privatisation

As aspects of our prison service provision are now open to competitive tender from the different sectors, more and more of our prisons are become privatised. In order for me to accurately assess whether this mixed economy of prison service provision is in the public interest, it is important to assess the impact of privatisation on our society and view the positive and negative aspects it may have.

So what are the advantages of these privately run prisons and how do they benefit the interests of the public? Firstly, the process of contracting allows prisons to be financed, sited, and constructing more quickly and cheaply than government prisons. This therefore will assist in solving the current overcrowding problem within England and Wales. Private firms are also more likely to design for an efficient operation; in a competitive environment this is essential as profit margins must be kept as low as possible in the process of keeping total costs down.

I will look at the various other benefits of privatisation under four broad areas; standards, managerial, financial and society.

Standards

By creating an alternative, privatisation can be seen to raise the standards for the government as well as for private vendors. It also provides an alternative benchmark against which to measure the government service, allowing comparisons to be made against the public prisons. Through market testing, privatisation also motivates both public and private prisons to compete on quality as well as cost.

Privatisation may also add new expertise and specialised skills into the prison market, as private organisations bring their own specialties into the system.

It can promote creativity and enthusiasm by bringing in “new blood” and new ideas, more often than is possible under the civil service.

Prison governors within a privately run prison may have an extra incentive to govern inmates fairly; this is more likely to enhance their legitimation, thus induce co-operation, resulting in lower costs and ensure renewal of contacts.

Managerial

Privatisation can relieve public administrators of daily hassles, allowing them to plan, set policy, and supervise. It can also reduce some of the political pressures that interfere with good management.

Privatisation can increase accountability because it is easier for the government to monitor and control a private or third sector company, than to monitor itself. [8] 

The use of operational contracts can also assist in providing a higher level of control and accountability than that which has traditionally existed in relation to public sector prisons. They enable the specification of standards of service against which performance can be measured and action taken in the event of non-compliance.

Financial

Privatisation permits economies of scale; this arises when the cost per unit falls as output increases. This is one of the benefits of being a larger business and can lead to economic growth. With the large amounts of profit to be made in the business, privatisation holds out the promise of cutting capital expenditure and running costs for the government while modernising the prison system. It can also increase the number of suppliers, thus reducing dependence and vulnerability to strikes, slowdowns, or bad management.

Society

Privatisation discourages waste because spending large amounts of money without consideration of the future, cuts into profits. Firms must therefore be careful not to waste their finances. Another advantage is that can encourage a much broader interest, involvement, and participation in the prison service by people outside of the government. According to Logan [9] , it may also enhance public and inmate safety through increased staff training and professionalism.

Finally, contractors are usually forced to be more responsive to the attitudes and needs of local communities when sitting a prison.

No matter what the critics of privatisation argue, it must be noted that private prisons could hardly be doing worse than some of the current public prisons, in terms of quality. The benefits I have listed show us the ways in which privatisation within our prison systems can be beneficial, for the government, for the private and voluntary sectors, as well for the public interest. These benefits would not exist if the public sector remained a monopoly and there was not to be any competitive tender from the private and voluntary sectors.

Disadvantages

As well as the many positive attributes that privatisation can bring, it is not without critics. There are various critics of the privatization process, who believe that the whole idea of making profits from the incarceration of offenders is vile. They argue that this is one function of the state that should remain a purely public service. Frances Crook, of the Howard League for Penal Reform, argues that if the state takes away someone's liberty, it is the state that should take responsibility for them. Taking away a person's freedom is the most drastic step available to the state and the responsibility therefore must rest with the state. During the privatisation debate in Britain, Sir Leon Radzinowicz similarly argued that:

. . . in a democracy grounded on the rule of law and public accountability the enforcement of penal legislation . . . should be the undiluted responsibility of the state. It is one thing for private companies to provide services for the prison system but it is an altogether different matter for bodies whose motivation is primarily commercial to have coercive powers over prisoners. [10] 

I will look at some of the negative aspects of privatisation under four broad areas; financial, quality/corruption, managerial, society and safety and future.

financial

There have also been alarms being raised regarding the size of the profits being made by some of those now in the prison business. Once a new prison has been built, the company can re-negotiate its bank loans, cutting costs and boosting its return. Stephen Nathan, editor of Prison Privatisation Report International, argues that while it may appear fiscally attractive, there are dreadful social and economic implications.

"Money which could be allocated to services is creamed off in profits and fees to consultants and advisers," according to him, "The fuse is lit on a financial time bomb."

Can a private commercial company whose accountability is principally in the hands of its shareholders legitimately provide a public service? Privatisation can be seen to put profit motives ahead of the public interest, inmate interests or the purposes of imprisonment. The spotlight has been drawn into this area especially after the experience with the privatised railway system and there very well may be a conflict between the public interest and that of the shareholders.

This ‘profit motive’ may also encourage private prisons to reducing staffing levels as a way of saving costs. Private companies at the planning stage initially intend to save millions of pounds. Consequently if a company running the prisons eager to keep costs to a minimum, there is a great desire to reduce both staffing and salary levels. Alec Leathwood, of the Prison Service Union, says pay rates in the private sector are "appalling", and his members earn several thousand pounds a year less than officers in state-run prisons. Prison reformers have expressed concern that the increasing use of electronic surveillance to monitor prisoners is one way of reducing staff numbers. They warn that it will dehumanise prison life, and make it more difficult to tackle problems such as bullying and self-harm.

As mentioned earlier, a breach of an operating contract can result in the withholding of a portion of the monthly fee in order to try and encourage the contractor to meet the agreed performance standards. Although this is used in order to encourage the contractor to drive up quality and keep up with the agreed performance standards, conversely, it can be argued that the threat of financial damage can provide a strong motivation to cover up malpractice.

Private prisons generally contract on a basis in which a rate is paid by the government for each prisoner within the institution; the amount therefore varies according to the number of prisoners. This may give private prisons an incentive to hold prisoners as long as possible to maximise their profits. Consequently this can have damaging effects on prisoners as their journey to release is disrupted.

Quality/Curruption

Wherever large some of money is involved, especially if accountability becomes weak, there will be a risk of corruption. Corruption has been a problem in prison contracting historically and it is a problem in other types of government contracting today. [11] Privatisation can bring with it new opportunities for corruption, through political spoils, conflict of interest, bribes or kickbacks. It may also encourage the government to neglect or avoid its ultimate responsibility for prisons resulting in weakened supervision.

One form of collusion that comes with the process of privatisation is bid rigging, this occurs during a competitive tender whereby firms falsely put forward high prices to give the illusion of competition. Cover pricing occurs when “one or more bidders in a tender process obtains an artificially high price from a competitor. Such bids are priced so as not to win the contract but are submitted as genuine bids, which give a misleading impression to clients as to the real extent of competition. This distorts the tender process.” [12] 

Balfour Beatty, Interserve and Carillion, are construction firms who were invited by NOMS to compete in a competitive tender to be included in the framework agreement to bid for the next round of PFI prison contracts. They were however fined by the Office of Fair Trading (OFT) for infringing competition law via rigging bids or through cover pricing. Balfour Beatty was fined £5.2 million, Interserve was fined £11.6 million and Carillion £5.4 million respectively. The OFT also found six instances where successful bidders had paid an agreed sum of between £2,500 and £60,000 to the unsuccessful bidder through the raising of false invoices.

This type of behavior show us how sort after the prison contracts are, considering the lengths some of these companies are willing to go through to get hold of these contracts. These fraudulent acts, can stop law abiding firms putting in their bids and make us question whether we can trust these firms with our prisoners.

Another major problem that comes in conjunction with privatisation arises when profits are determined by output-based measures. Some therapeutic prisons for example, can receive more money from the government depending on various measures of performance, for example keeping prisoners within therapy. This may consequently encourage contractors to keep unsuitable prisoners within therapy in order to maximise profits. Another measure of performance may be through reconviction rates. The lower the reconviction rate, the more money they will receive as an incentive to continue with the positive work. However this may allure the contractor to select for therapy the easier and more stable prisoners, leaving the worse off offenders to remain within the public realm. [13] 

Managerial

It has been argued that privatisation may reduce quality through the pressure to cut corners economically. It may also create incentives to lobby for laws and public policies that serve special interests rather than the public interest; in particular, private prison companies may lobby for more imprisonment (as they would receive more revenue from the government for them), rather than rehabilitative measures.

The privatised prisons are assessed on the basis of certain outputs, for example, the proportion of prisoners in certain workshops or classes. However this can be difficult to assess accurately, when the service is in the hands of private contractors and not the government. [14] 

Society/Safety

Privatisation may jeopardise public and inmate safety through inadequate staff levels or training. An example of this was witnessed in the treatment of Rye Hill prisoner, Aleksey Baranovsky.

Aleksay Baranovsky, a prisoner at Rye Hill was found dead in his cell in the health care unit on 10 June 2006. His death formed controversy and sparked further debate about the problems of prison privatisation. His treatment was stated to be “appalling and at times unacceptable in any modern society,” according to the assistant deputy coroner for Northamptonshire, Tom Osbourne.The jury on 23 September 2009 returned a narrative verdict, finding that the cause of death was anaemia due to chronic blood loss and under nutrition. Rye Hills healthcare services were sub-contracted to Primecare, one of the leading commercial providers of primary health care services in the UK. The jury found that the company had failed to carry out a sufficient mental health assessment or draw up a thorough care plan for Mr. Baranovsky. The jury also discovered that there were inadequate systems and processes regarding verbal and written communication between healthcare staff, prison security and prison management. Primecare’s independent report into the incident however found no failings on the part of healthcare staff.

There may also be an increase in the number of strikes due to privatisation as it may threaten the jobs and benefits of public employees. This can be seen after the plans to privatise Buckley Hall Prison in Rochdale were revealed, this was challenged by the Prisoner Officers’ Association who threatened to go on strike should the privatisation go ahead. They argued that the prison officers feared for their jobs which were are on undecided territory.

Future

One of the major arguments against the privatisation process is the threat that expanding capacity and making imprisonment more feasible and efficient may unduly expand the use of imprisonment and weaken the search for alternatives. Rehabilitative measures are ignored at the expense of punitive incarceration.

Summary

Even considering all the negative aspects that have come alongside with it, privatisation, in particular the competition that has arisen with it, has improved public prisons in the face of rivalry. It is a proven mechanism to improve performance and price. According to a Department of Trade and Industry report in 2005, the competitive tendering of prisons has lead to cost savings between 10 and 22 per cent, which will ensure the best use of taxpayers’ money. It has consequently lead to service improvement across the board, including in the public sector with leaner management structures, reduced sickness leave and a more mobile workforce. [15] 

Critics such as Sir Leon Radzinowicz mentioned earlier, have argued that the enforcement of penal legislation should be the undiluted responsibility of the state. However it must be noted that the private, public and voluntary sectors all obtain their authority from the law and are accountable in law for the exercise of their powers. All prisons, regardless of what sector, are subject to the same disciplinary code. They all operate within the legal framework that derives from the Prison Act 1952, potential offences against discipline are identical for all sectors.

The contract system enables accountability to remain and according to Harding standards are not lost. Harding points out that the contracting out of prison management entails the delegation by the state of the accomplishment of its formal goals and the discharge of its responsibilities to others. Hence, failure by the delegates is tantamount to failure by the state itself. [16] If a mixed economy of prison service provision is not diluting accountability, then why should it remain the undiluted responsibility of the state?

It has been argued that prisons in the private realm may be tempted to indulge in deviant behaviour such as reducing staffing levels or keeping prisoners in therapy to maximise profits. However these could be minimised by effective supervision. For instance, if an active profile and regular presence from the Board of Visitors and Home Office Controller were maintained within the institutions. Frequent inspections carried out by the HM Chief Inspector of Prisons will also assist in reducing these problems.

Conclusion

To finalise my essay, yes you can find problems with privatisation and this mixed economy of prison service provision that has arisen from it, however a lot of these problems can be aided with the input of effective supervision from the government. We live in an age in which political parties gain the respect of the public if they are tougher on crime. The publication of the Halliday Report has lead to previous convictions to be taken into account in the sentencing of repeat offenders, it also imposed tougher sentences to be imposed for the most serious offenders. These have assisted the prison population to have vigorously risen for over a generation. The result is extreme levels of overcrowding in our prison cells. In such chaotic circumstances, the rehabilitation of offenders is near impossible and the public is suffering along with the prisoners.

Whatever the critics may think, considering the rising prison population, one thing is certain, we need more prisons and the role of the private sector in the criminal justice system is now substantial, and set to expand. Practically; is the government going to stop incarcerating people or building new prisons? The real question is how we can as socially responsible people and organisations ensure that this is carried out in such a way to ensure that individuals have the maximum chance of success in rehabilitation and resettlement?

I believe that reforms that allow voluntary sector organisations such as charities to contract with the private sector offer a ray of hope for rehabilitation and reducing crime. Although a charity should not be wholly responsible for punishment or detention, we should not loose an opportunity to improve an individuals’ opportunity for rehabilitation.

Private companies, such as Serco, should still be managing the prisons and I do not think that charities should not be locking the doors. They can have a different professional relationship with the companies. Subsequently, by being involved at a high level, charities will have a say in how prisons are run, ensuring that the culture of the prisons is changed and that there are proper rehabilitation services. Competition has always enabled progression and progression leads to prosperity. This mixed economy of prison service provision, in a failing prison system offers us a ray of hope.

Although competition has enabled the system to thrive, the private, public and voluntary sectors all have their different motives. In order to have the best chance to rehabilitate offenders and to stop them re-offending, whilst simultaneously being a financial success, more tenders for prison contracts should be made with a fusion with the voluntary sector.

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