A Solution To The Four Threats To Public Service Reform

In last week’s post I outlined what I consider to be the four biggest threats to public sector reform. These are what I see as the major sticking points that will hold back the whole (laudable) notion of returning power to communities unless they are addressed. I asked for your thoughts and suggestions and received a muted response. What follows then are my working thoughts on how to solve or bypass some of these issues. Let me know if you agree, or disagree and if you have other ways to push public sector reform on.   

Problem # 1 – “The culture of commissioners who hide behind procurement "rules" and strip out cost at the expense of long-term value.”

There are two elements behind this problem. Firstly, in a public service commissioner’s mind, cost is king - not surprising with all this talk of austerity. I’m not suggesting that we throw caution to the wind and embrace profligacy, but there’s a huge difference between only measuring what you spend and measuring what you spend it on. The second element is that at a time when innovation and flexible thinking are so desperately needed, the pressures on job security are promoting a conservatism that is working against Conservative ambitions.

It’s obvious that we need to promote change. Now we've got Chris White's Public Service Act on the Statute book - lets get it into operation quickly. As he explained in Ethos

“…we need to consider more than just finances when delivering public services. Public services can generate considerable social, economic and environmental benefits for their communities. In order to get the most from our public services, therefore, we need to ensure that we design contracts that take these things into account and build them into delivery.”

Precisely. And then we need to build on that start: perhaps by asking public service organisations to publish details of the value they create, not just (or even at all) of the money which they spend.

Once this is moving we can create momentum by removing the constrictions from commissioners. If they are asked to weigh cost then that’s exactly what they’ll do. We must ask them to include value and innovation. The key is to embed economic, social and environmental value in the contracts that are created.

A great example of this would be to look at the next round of HCA contracts for new affordable homes and ask what commitment they will require in terms of the added economic value not just from the site itself but right through the supply chain. Apprenticeships, local jobs, environmental value, energy saving, social value of community-led regeneration – all of these metrics could be embedded to give us progress that brings real change. Of course – the organisations themselves could apply these same metrics and lead the change by refusing to bid for contracts where such considerations were not the determining factor.

Problem #2 – “The vested interests of the current cohort of providers whose business models are profoundly threatened by such a change.”

If there’s one thing that the recent banking crisis has shown us it’s the arrogance that security brings. The titanic feeling of superiority that our business models are unsinkable, simply because we can’t conceive of their failure. As we have seen though we live in interesting times, times when headlines such as “developing landlords face extinction” are published and read, but perhaps not truly understood by our sector.

I’m not sure that this particular barrier to public sector reform is one that we have to do much about per se. The changes will come regardless of whether people accept it or not. The fact is that freed from the choke chains of regulation the bigger dogs are already unleashed and it’s only a matter of time before the casualties begin. This aspect of the industry is perhaps the most unsettling, because a failure to change means that people are either not looking at what’s happening, or they incapable of acknowledging the reality. I don’t think either conclusion reflects well.

Problem #3 – “The short-termist goals pursued by the profit-driven, private sector organisations who are the new default delivery model. Does the claimed efficiency that they bring really make the profits they take out a fair exchange for the public purse?”

As CEO of one of the organisations that would stereotypically be characterised as a do-gooder not-for-profits I feel obliged to take umbrage at the assumption that all private sector companies are sleek, lean and on-the-ball. As one politician was overheard to say “[a not-for-profit company] will never get a contract from us for that...” whilst rewarding some incredibly poor private companies with contracts. This is lazy thinking that hasn’t been updated since the late 1970s. To my way of thinking there are good companies and there are poor ones, the model of governance doesn’t come into it. We should stop assuming that favouring private or public companies is going to provide us with an answer and learn to separate the good from the bad.

Equally, if we are to create a level playing field between the different types of organisation then we need to have an equitable view on profits. How is it that a 15% profit for the private sector (distributed to shareholders for uncertain and unquantifiable social return) is seen as acceptable, while a 15% margin in the not-for-profit-sector (retained in the business 100% for future re-investment for further social return) is not?

A cautionary word too on short-termism. I’ve watched with interest the changes in how repairs are done in our sector. When I started in housing 30 years ago, small, local owner-run contractors did repairs for housing associations. They knew the patch, they knew the properties, they knew many of the tenants and most importantly, they knew that their future was inextricably linked to that of the landlord employing them. Under increasing cost pressures from regulators, big drove out small in the contractor world. Then we had the very big driving out the big, with expansion driven by shareholder capital and the short term demands it makes. And now the wheel comes full circle as landlords seek to exit from these mass contracts as quality just isn't there any more. It would be nice to think that we could learn from history.

Problem #4 – “The asymmetry of information - with the public being handed the purchasing power, but told nothing (other than perhaps the most rudimentary cost data) to enable them to assess the value of alternative choices. How do we make those choices more informed?”

If, as I suspect, we are moving into an era where public services become market driven we need to recognise that markets only operate well when there is good quality information about the elements of that market, that is widely available on a timely basis. So for a public service market to operate effectively, we would need:

                 1.    The research and analysis skills that underpin other markets to turn their attention to ours. We would need the lens they used to be one that examines long-term value creation not short-term financial strength. Beyond that the skills and techniques they use would be largely similar.

               2.     Wide and rapid dissemination of the research findings through a strong and reliable linkage between the research analysts and those with the purchasing power – whether that is the purchasing public, or commissioners mediating on their behalf – so that the research really does influence purchasing decisions, rather than sit on a shelf somewhere.

              3.     Most of all – an issue I, and others, have repeatedly highlighted - we need an agreed method of calculating social return, so that the relative benefits of types of social value can properly be compared.

I’ve been wondering about the potential meaning behind the limited (well, non-existent actually) response to my challenge to provide your thoughts and answers to these issues last week. I know some people out there read it and I guess many of those readers really care about this topic. It can't surely be much of a strategy to deal with what is surely coming to watch and wait and hope it won't do too much damage. Is it in the "too hard" pile? Or as a housing sector, do we think these things don't really matter to us?