Scandalous CRC bailout investigated

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14/02/2018

Scandalous CRC bailout investigated

Napo members would have been left reeling at the revelation government had handed over an additional £342m to failing CRCs over the course of 2017.

Napo, Unison and GMB/SCOOP wrote to the National Audit Office requesting an investigation into the lack of transparency of the MOJ’s multi-million pound bail out of the CRCs and this is what it found:

  • CRCs are paid for the volume of rehabilitation activity which they provide, not the number of clients supervised
  • The MOJ claimed originally that it would transfer the commercial risk of future volumes of rehabilitation activity going down, as well as up, to the CRCs
  • The MOJ obtained parent company guarantees that financial protection would be provided for the taxpayer should the CRCs seriously underperform
  • The volume of rehabilitation activity actually went down, but the commercial risk attached to this was not transferred as promised to the CRCs, but was handed back to the taxpayer
  • The MOJ ended up paying the CRCs more in 2016/17 than was contractually required in order to keep them afloat
  • The CRCs under-estimated their fixed costs when bidding for the contracts, but the MOJ agreed that the taxpayer, not the private companies, should shoulder these costs instead
  • So far this has all cost the taxpayer an additional £342 million
  • By the end of June 2017, CRCs had, on average, met just 8 of the 24 targets set for them under their contracts. The worst performing CRC, met only 4 of its 24 targets.
  • Although it is entitled to fine the CRCs for poor performance, the MOJ has either waived, or allowed CRCs to “re-invest”,  71% of the total of the fines which were due to the taxpayer
  • One of the options which the MOJ considered in respect of the poor performance of the CRCs was to terminate some, or all, of the CRC contracts, but decided instead to let the taxpayer take the strain of the failing contracts by amending the contract payment mechanisms to give the CRCs more money.

Multiple reports published by HMI Probation questioned the financial viability of CRCs and this NAO investigation confirms what Napo and the Inspectorate knew all along: these providers are underfunded and unable to deliver little of the “innovations” to rehabilitation that were promised.

Public Accounts Committee

The Public Accounts Committee also paid detailed attention to the NAO findings. The Committee last looked at the operation of the CRC contracts in 2016 and made a number of recommendations for improvement, so they were clearly interested to probe the current position.

Richard Heaton, MoJ Accounting Officer, and Chief Executive of HMPPS, Michael Spurr faced close questioning by members of the Committee particularly from MPs Chris Evans, Caroline Flint and Shabeena Mahmood. (You can view the evidence session in full on parliament TV)

What emerged was that, rather than being able to concentrate on managing the delivery of the service, officials were having to focus on restructuring the contracts so that they can provide sufficient profit for the providers to enable them to invest in the services. Given where they are this makes sense, but it still begs the question of why we are here at all?

The Corillion experience has demonstrated the risk of entrusting vital public services to companies whose sole enterprise is to manage contracts across a wide range of disparate areas – both private and public. And the question asked by MPs on the Committee, ‘is this then the right model when the risk ultimately will always be borne by the government and the taxpayer, is a totally valid one.

In response to this line of questioning Richard Heaton responded that this was getting into the area of political decisions on which he couldn’t comment. The Justice Select Committee is currently conducting its own investigation into the operation of TR. Napo has already submitted written evidence and will be following this up with further information and oral evidence over the coming weeks.

Holding the CRCs to account

Managing the contracts has not proved straightforward either as demonstrated by the NAO report’s finding that the MoJ has decided not to collect the majority of the service credits it was entitled to for underperformance. In response to close questioning on this from Shabeena Mahmood, Richard Heaton protested that it was not in anyone’s interest to ‘simply run a contract in a macho way to lead the contracting party to fall over’. Michael Spurr also made the point that his job was to make sure the services work and that was more important than applying the letter of the contracts. But this still leaves the fact that the answer to the MP’s subsequent question: “how bad do they have to be before you press your advantage further?” is that, under the present arranged they cannot be allowed to be bad – even if it means bailing them out.

Experts and those working in the field know that more money needs to be pumped into interventions if the UK has any chance of reducing prison numbers and provide assistance to those who have already been through the system and are eager to become productive members of society. Imagine what investing £342m into provisions for young people, women, mental health or carrying out some of the recommendations from the Lammy review could have done. Instead millions of pounds of valuable taxpayer money have been poured into the financial black hole that is the CRCs.

While these companies’ operational plans are under heavy scrutiny, those working tirelessly have received honourable mentions for making the best of a bad situation. But earning praise for working under difficult – and sometime impossible – conditions is not the same as earning a wage deserved of keeping the community safe.

Napo, along with the other unions is calling on the government to take the failing CRC contracts back into public ownership to protect the UK taxpayer from further expense in propping up unsustainable private companies.

Watch the Public Accounts Committee hearing in full here https://goo.gl/GyEY1K

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