36

the savings permanent? Domberger and colleagues estimated average cost sav- ings of about 20 per cent where private refuse collec- tors were used by local authorities (Domberger, Meadowcroft and Thomp- son, 1986).

Dom b e r g e r concluded

NEW ECONOMY

ment of the impact of compe- tition ”must be limited”. They say changing account- ing practices that have re- sulted from competition, ”have made the provision of

exploiting labour information and compari- sons on costs before and after competition difficult”.

A later report (DOE, 1993,

”CCT should be seen in i ts true light:

contracting out as a means Of Controlling public expenditure,

utilisation and reducing the influence of public

sector unions Over Pay.’’

CONTROVERSY ALIAN KERR & MIKE RADFORD

Kerris National Mer. membership services and development, at the public sector union UNISON,

Radfod is Lechner in h, University of East Anglia

New Economy

that the savings were a result -

CCT challenged

Competition and Service) says

Following Szymanski‘s article in favour of compulsory competitive tendering here is the case against

1070-3535/95/010036 + 06 508.0010 0 1995 THE DRYDEN PRESS

CONTROVERSY CCT CHALLENGED 37

nent or transitory, we look no further than Szymanski’s own study (Szymanski and Wilkins, 1992). Here he examined contracts from some 40 councils which had voluntarily tendered their refuse collection services, and compared them to about 300 local authorities which had not. In the year after the contract was awarded, costs fell by 20 per cent in those authorities which tendered their work.

But Szymanski conc1uded:”While the sav- ings from contracting out appear to rise, we found evidence that the trend is reversed four years after the award of the initial contract (a typical contract length was five years). Since this is about the time most of the initial con- tracts were renegotiated, we believe there is strong evidence that underbidding was tak- ing place with a view to obtaining a long term relationship with the local authority.”

About half the local authorities which sub- sequently re-tendered awarded the new con- tract to the same contractor. And although contractors may have put in low bids to win the initial contract, they did not repeat this for the second round. Three major private con- tractors have pre-tax losses directly attribut- able to their refuse collection business (Priva- tisation News, No 29, June 1994, PSPRU).

The evidence suggests that savings for lo- cal authorities may be transitory.

Job-shedding How are savings made through CCT? All the evidence points to lower costs as a result of fewer jobs. The Local Government, Planning and Land Act 1980 and the Local Govern- ment Act 1988 led to the loss of 28,192 full- time equivalent posts (FTEs) between March 1989 and March 1992 according to the Local Government Management Board.

Contracting out has boosted the number of full-time non-manual jobs, such as support staff employed by local authorities (Direct Service Organisations or DSOs), and staff re- sponsible for monitoring contract perform- ance. But according to the DOES own re- search, these are more than offset by job losses

associated with contracting out. Szymanski admits that some of the savings

have been made through poorer pay and worse conditions of service. But he appears to minimise the impact of competition on low wage earners in local government. The DOE researchers said: ”Competition inevitably has major implications for pay, conditions and staffing levels [of DSOs]. If they are to com- pete, then local authorities must be able to reduce their costs below those of private con- tractors. The private sector will generally offer lower levels of pay and have poorer condi- tions.”

A survey by the trade union-sponsored La- bour Research Department of 300 local gov- ernment contracts supports the DOE findings (LRD, 1990). But we cannot find any publish- ed evidence to support the contractor’s claim quoted by Szymanski that “in many cases [hourly wage rates] have actually risen”. In fact, the evidence points to significant reduc- tions in pay and deterioration in conditions.

It may be possible to attribute the cost reductions to improvements in productivity. The DOE researchers said that for DSOs, com- petition has increased the level of productiv- ity, ”largely through staff working harder” (DOE, 1993).

It is not surprising that many employees accept new working arrangements rather than lose their jobs. The government has taken advantage of the run-down in the econ- omy to coerce mainly low-paid women to work harder without any objective measure to demonstrate that they under-performed in the first place.

Equal opportunities and training CCT has undermined the advance of equal opportunities in local government. The major- ity of manual employees in local government are women, mostly working part time. These are the workers most likely to lose their jobs or take cuts in pay and conditions. Career oppor- tunities for women in managerial posts, pre- viously available in catering and cleaning, have

38 NEW ECONOMY

been increasingly taken by men following the introduction of CCT (DOE, 1993).

Although accepting the importance of training, DSO managers are also likely to question the cost of doing it in-house when faced with competition from contractors.

Casual labour Another thing CCT has done is to produce a push towards the casualisation of labour. Many contractors in the public sector are in- creasingly using casual staff to deal with peaks and troughs of work (DOE, 1991). One of the more outrageous impacts of casualisa- tion has been the use of 'zero-hour contracts' - where employees do not have an agreed number of hours to work, but are expected to be available for work at the beck and call of the contractor. The pattern emearging is of a core staff, with others recruited on a tempo- rary basis as and when needed.

DOE researchers describe the costs to local authorities of preparing for competition as 'significant'. Szymanski ig- nores start-up costs. One esti- mate puts these costs at about €167 million (Local Govern- ment Chronicle, 5 July 1991). North Tyneside Metropolitan Borough Council, for exam- ple, spent €100,000 preparing to let its vehcle maintenance contract - but no bids were

tion has been estimated at around 3 per cent of the annual contract value and would, on the basis of the DOE study, virtually eliminate the savings in catering, leisure management and vehicle management.

Has quality improved? The evidence that service quality has im- proved is far from convincing. To begin with, most local authorities specify the same serv- ice standards as before, with a minority adopting higher standards (DOE, 1993). But more important is the extent to which stand- ards are met. A measure of this is the number of contracts experiencing problems. Accord- ing to the trade union-sponsored Public Serv- ices Privatisation Research Unit (PSPRU), 28 per cent of contracts held by contractors have been encountering problems, compared with 6 per cent where the work has been retained in-house.

Moreover, 10 per cent of contracts held by the private sector have been terminated, com-

pared with 2 per cent of those

"CCT may indeed produce

savings, but their magnitude remains a matter of debate and

their source is an important issue."

received (Local Government Chronicle, 4 August 1989). Leicester City Council, for another, spent €3OO,ooO on a new computer system for its DSO and more than €30,000 refurbishing a building so that its cli- ent and contractor team could be separated (Centre for Public Services, November 1989).

The DOE study revealed that start-up costs may offset potential savings from CCT. One county council said the additional costs of ad- ministering contracts was greater than the savings available from services which had hstorically been run effectively. In general, the continuing cost of preparing for competi-

held by DSOs. A substantial minority of contractors are not satisfying the required standard of service (38 per cent of contracts operated by private firms).

In many cases, the con- tractors cause their own problems by underbidding and failing to recruit and re-

tain staff, the very practices cut-throat compe- tition encourages. Although quality has be- come a key issue, where is the evidence that CCT has improved service standards?

Playing by the rules? Szymanski complains of "instances where local authorities have shown bias in favour of the DSO". Similarly, the government in its consultation paper Competingfor Quality said too many authorities have sought to "bend the rules so as to cushion their workforces against the full force of competition. In the 18

CONTROVERSY: CCT CHALLENGED 39

months following the first deadline for com- petition under the 1988 Act, directions were given to 10 local authorities about anti-com- petitive behaviour.”

But the Association of Metropolitan Authorities ( A m ) reported in 1991 that only a small number of local authorities had been required to explain their reasons for awarding work, usually to the DSO (a Section 13 notice under the 1988 Local Government Act) and even fewer had further been required to re- tender a service, excluding the DSO (a Section 14 notice) with only 22 notices issued in total. Noting the few notices to explain awards and even fewer follow-up requirements to re-ten- der, the AMA concluded that there was ”very scant concrete evidence to show that councils have distorted, prevented or restricted com- petition” (Municipal Review and M A News, June 1991).

The pattern of complaints has not changed much. In 1993, 122 allegations of anti-com- petitive behaviour were investigated and 23 upheld (Municipal Journal, 1 April 1994). These complaints were made following changes to the tendering rules requested by contractors. Yet the published evidence does not support the contractors’ claim of bias, nor are we aware of evidence to support the con- tractors’ allegation that ”a significant number of cases of bias go unchallenged.

Szymanski’s assertion that DSOs have an advantage over private contractors relies on DOE data that suggests local authorities that keep work in-house pay significantly higher costs for services than those using the private sector. But the data can be used to argue that DSOs provide a more reliable, better quality, value-for-money service. The evidence we have cited supports this interpretation, par- ticularly in view of the time government has spent monitoring allegations of abuse.

Acco u n t a b i I i ty Szymanski emphasizes the advantages of a contractual relationship between local authorities and contractors for the provision

of local services. But he neglects the weak- nesses of such an arrangement. Exponents of government by contract say accountability for service delivery exists through the con- tractual obligations of the contractor to the local authority which is, in turn, answerable to the local electorate.

This is a gross oversimplification. A con- tractor is not subject to the legal requirements imposed on local authorities to provide access to information; directors of contracting companies are not accountable to the local community in the same way as councillors are; and private firms do not fall within the jurisdiction of the local government om- budsman. What is more, to the public, it is not clear who is responsible for the delivery of a service - the private contractor or the local authority.

Then there is the problem of interpreting a contractor’s responsibilities under a contract. Contracts do not provide the flexibility and responsiveness that can be achieved by service provision through an internal management hi- erarchy (Stewart, 1993). In many services, it is difficult to specify in advance the outcomes required. If accountability in these circum- stances is reduced to bargaining, writes Ste- wart, it may limit “the extent to which con- tracts can be an instrument of public account- ability”. Expensive and time-consuming liti- gation may be the only way for a local author- ity to enforce the terms of a contract.

Another weakness of government by con- tract is the limitation contracting out places on the opportunity to learn from experience, which has been a characteristic of direct serv- ice provision. The separation of client and con- tractor creates barriers to the flow of informa- tion, thereby reducing the ability to respond to unforeseen events, except through renegotia- tion of the contract. What is more, it restricts the ability of local councillors to respond to concerns about local services. If CCT is here to stay, the danger is that local authorities will lose their capacity to learn from, and adapt to, the requirements of local communities.

40 NEW ECONOMY

Is CCT a good thing? The case for CCT is based on the premise that it appears to have improved quality and, through increased efficiency, reduced costs. But PSPRU research points to contractors un- able to meet required service standards, withdrawing from contracts and, in some cases, going bankrupt. Nor does the claim that quality has improved stand up to scru- tiny. Few local authorities are demanding higher standards in their service specifica- tions. By contrast, most DSOs (90 per cent according to the DOE study) are achieving the service standards set by local authorities.

CCT may indeed produce savings, but their magnitude remains a matter of debate and their source is an important issue. When the govem- ment proposed competitive tendering, we were told competition would lead to better managed, more innovative and more responsive services. In turn, those changes would result in efficiency gains and cost savings. Survey evidence reveals the savings have not been achieved in the man- ner suggested. Rather, they are the result of sub- stantial job losses and worsening pay and con- ditions for the lowest paid, m d y women part- time workers.

CCT has forced many local authorities to question their equal opportunities policies. When faced with competition from contrac- tors, DSO managers can no longer justify the cost of these policies. This aspect of contract- ing out affects the most disadvantaged in the labour market: the low paid, women, ethnic minorities and people with disabilities - who are over-represented in catering and cleaning jobs in local government.

Most savings have been accomplished by job losses and cutting back on the pay and conditions of the low paid. True, if the govem- ment and contractors come to accept that TUPE - Transfer of Undertalungs (Protection of Employment) - legislation applies to con- tracted-out services, workers may be pro- tected from at least some of these effects since it would ensure that staff transfered from

public to private employment maintain the same basic conditions. However, the TUPE regulations have two significant shortcom- ings. First, it is not yet clear whether contrac- tors are obliged to provide pension rights to transferred employees. Second, the protec- tion afforded to jobs and pay does not apply throughout the duration of the contract. Con- tractors can still sack workers and offer the rest poorer pay and conditions. CCT with TUPE must not be confused with what used to be called ‘contract compliance’.

Government by contract has led to an ero- sion of local democracy because of the lack of public accountability on the part of private contractors. The inflexible nature of contracts reinforces the lack of accountability. Above all, politicians cannot respond to all the de- mands of local people without burdensome and costly renegotiation of contracts. This se- verely h i t s the role of political pressure and protest in local politics.

Under CCT, contractors have no incentive to improve and develop services - they are paid for meeting the contract specifications. In the private sector, the motivation will always be profit. It is more complex in the public sector. Efficiency needs to be balanced with aspirations of accountability, equal access and greater responsiveness.

Alternatives If CCT - even with TUPE - is not a good thmg in local government, how do we guar- antee good service delivery? In the past, inef- fectual management and paternalism probably did produce local services that seemed to be run for the benefit of politicians and producers rather than users. This is no longer true. There has been a fundamental cultural change in the way local authorities manage services. Rejecting CCT does not mean all the benefits will be lost. Local authorities will continue to review and de- h e service specifications, monitor standards and set clear performance targets.

The assertion that competition with the

CONTROVERSY: CCT CHALLENGED 41

private sector is the only way to maintain these gains is flawed. Another way might be to set minimum standards of service delivery, using the approach of customer service con- tracts and complaints procedures success- fully developed by a number of local authori- ties. Involving the local community in defin- ing and monitoring the quality of service pro- vision is an integral part of this approach.

Barely hidden agenda We do not believe the aim of the CCT policy was to increase efficiency and improve value for money. In its White Paper Employment for the 1990s, the government said it believed among the major causes of unemployment and low growth in the UK were excessive pay settlements and inflexible pay bargaining ar- rangements.

The government’s attitude has been to dis- tance itself from collective bargaining in the public sector and to look to market forces to determine pay. CCT has been imposed on lo- cal government to do this. Moreover, the gov- ernment is relying on the fragmentation of public sector pay bargaining to reduce the

size of the public sector and undermine the ability of public sector unions to represent their members. The debate about CCT should be seen in its true light: contracting out as a means of controlling public expenditure, ex- ploiting labour utilisation and reducing the influence of public sector unions over pay.

Nor is CCT a potential spur to the resur- gence of local government in the UK as Szy- manski suggests. The importance of local government, as distinct from local admini- stration, is too readily ignored by those who regard governance as merely an extension of business. The strength of local govern- ment is that it allows pluralism, participa- tion and powersharing. In contrast, CCT re- sults in an oligarchy of local authority tech- nocrats locking their communities into five- year deals with a handful of faceless busi- ness people, all overseen by big brother at the DOE. CCT is part of local government’s inexorable decline to the status of an ena- bling council which will put the lid on the coffin of local democracy. Contracting out is not the salvation of local government. It may well be the death knell 0

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