Public and Commercial Services Union

Public sector - the ultimate guarantor

Nowhere in the world have universal public services been delivered solely by the private sector. There will always be a need for a public sector to provide those services that the market alone cannot adequately deliver. These services exist not for profit, but to support the social, economic and environmental well being of communities . The government takes on responsibility for their funding and the regulation of their quality and delivery. It also has responsibility for the risk of service failure - a risk that as we have seen in the cases of Railtrack and NATS can never be transferred, no matter who provides the service (for an excellent overview of  the relative merits of public versus private provision, see the PCS sponsored document "The Case for Civil and Public Services :  An Alternataive Vision").

Loss of control of service

Although contracts have penalty clauses attached to them, there is little evidence that they are effective. A penalty clause can only be invoked following service failure, so it is very much a question of shutting the stable door after the horse has bolted.

Reduced labour costs

Private contracts tend to make savings by reducing salaries and cutting jobs. There is ample evidence of the emergence of a two-tier workforce, with terms and conditions much worse for new employees than for staff transferred under TUPE (for more detail on TUPE and the new Two-Tier-Workforce Code, designed to prevent these problems, see Annex A and Annex B). A private sector employer will be far more content to accept high staff turnover, as many believe low staff turnover is unhealthy and will take action to encourage staff to move on. The two-tier workforce generally is a disunited workforce with lower morale. High staff turnover also makes it difficult for employers to meet civil service vetting standards; this can be a particular problem when work is secondarily outsourced to an agency.

Private sector inefficiency

There is no reliable evidence that the private sector is more efficient  than the public sector. Private companies are not producing the anticipated improvements in delivery time or cost, nor are they meeting quality standards. The recent court cases involving Railtrack and Balfour Beatty are testimony to that.

PPP's do not give long-term value for money. Critical to the case for PPP's are a number of adjustments to ensure that the public sector alternative can never win the value-for-money competition. When making comparisons PFI schemes exaggerate the delivery time and overrun expenses of public projects, making PFI schemes appear to be better value for money. Commercial confidentiality has often been used to stifle public scrutiny of PFI proposals.

Profits - putting the bottom line first

Profits made by private companies are out of all proportion to the risks taken. Private contracts are yielding huge profits at a time when civil service staff are working longer hours with increasing job insecurity. The principal risks transferred to the private sector in most PFI projects are those met during the construction phase, risks that disappear at an early stage of the project. Despite this, the risks are treated as if they were spread over the whole length of the contract and it is therefore very profitable for contractors to refinance projects. In some contracts, the private contractor has profited from fluctuations in the interest rate. One company recently made huge profits from a prison contract when the interest rate dropped between the time it submitted its bid and when it was accepted.

Imperfect competition

One risk is that too much is thrown into the contract, with highly specialised areas that will present additional problems if privatised being included. If this is the case, PCS representatives should challenge this from the outset, suggest separate srutiny of these areas, and limit the scope of what is being transferred.

The risk has two areas. Where there is limited provision of a specialist service privatisation can actually increase costs.  This can be through staff exercising their market worth and driving up costs (e.g. train drivers post-privatisation). Or it can be through a monopoly supplier driving up the costs of the contract if any new requirements become apparent, especially if the contract is for longer than three to five years. The price is fixed against known requirements at the time of transfer. If these change, the contractor can insert additional charges. If there is not enough competition for the department to challenge this, then they will have to pay whatever it costs.

Current examples include the MoD, where large PFI contracts for Defence Logistics are being considered. These essentially involve consortia bidding to renovate and build new schools, colleges, provide improved communication infrastructure, etc. Yet the provision of training is being thrown into the scope of the contract. This will not necessarily provide any savings. There is limited specialist expertise in these areas outside of the MoD so limited scope for competition to regulate and control price or quality. If this work transfers there will be little scope for the MoD to take the work back in-house if the contracts go wrong. As such it is a huge and unnecessary additional risk to include the provision of training in a contract. PFI hospitals specifically exclude those who conduct operations and medical care from the contract.

Consortia

In some instances employers may work together to win a contract, but revert back to their normal competitive state post-transfer. Where staff had previously worked together for a government department they now are divided by the competing employers, and sharing routine information becomes difficult.

As the employers compete, they fight over the more lucrative aspects of the  privatised contract, and this can lead to further TUPE transfers between the employers.