Government a long way from delivering 'rehabilitation revolution' says PAC report

REPORT SUMMARY

More than three years into its seven year contracts with Community Rehabilitation Companies (CRCs), the Ministry of Justice is a long way from delivering the ‘rehabilitation revolution’ it had promised.

In 2017, the Ministry was forced to adjust its contracts with CRCs because it pushed through its reforms too quickly and failed to anticipate foreseeable consequences.

The volumes of work paid for under the contracts has dramatically reduced, meaning that CRCs have not invested in probation services. The quality of rehabilitation services has suffered as a result and is undermining the objectives of the reforms.

The Ministry accepts that the CRC contracts were plainly not working as intended and has agreed to pay them up to £342 million more of taxpayers’ money. But the Ministry could not explain what it is getting back for this extra commitment.

Despite this bailout, 14 out of 21 CRCs are still forecasting losses. This raises concerns about the potential for contracts, or providers, to fail.

One provider, Interserve, has issued two profit warnings. As a company with multiple contracts across government this is particularly worrying in light of the collapse of Carillion.

The future income of CRCs will increasingly depend on their ability to reduce stubbornly high reoffending rates. While there has been a modest decrease in the number of re-offenders since CRCs were introduced, 19 CRCs have not met their targets for reducing the frequency of reoffending. 

These disappointing results raise questions about whether the current arrangements will be able to deliver the promised benefits before the contracts expire in 2021-22.

The Ministry urgently needs to make sure CRCs improve the quality of the services they provide and deliver on their promises of innovation to achieve the improved outcomes that offenders and communities so desperately need. 

COMMENT FROM PAC CHAIR MEG HILLIER MP

“The so-called ‘rehabilitation revolution’ is showing worrying signs of becoming a contracting catastrophe.

“Despite a massive injection of additional taxpayer cash, two-thirds of CRCs are forecasting losses and one provider, which holds multiple contracts across government, has issued profit warnings.

“Almost all have failed to meet targets for reducing rates of reoffending.

“This combination of poor performance and financial instability is neither acceptable nor sustainable. Yet the Government’s attempt to spend its way out of difficulty clearly isn’t working.

“It must act now to limit taxpayers’ exposure to risk and give this flagship strategy a fighting chance of delivering what it promised.”

CONCLUSIONS AND RECOMMENDATIONS

The Ministry still has a long way to go before it achieves the objectives of its reforms. Despite committing up to £342 million more of taxpayers’ money to stabilise its contracts with CRCs, the Ministry has not fixed the underlying problem or ensured that its ‘rehabilitation revolution’ will actually be delivered. We are deeply concerned that, following the injection of additional public money into these contracts, 14 out of 21 CRCs are still forecasting losses. The majority of CRCs are therefore not much closer to a sustainable position than they were before the contracts were changed. Despite the additional funding, the Ministry did not persuade us that the CRCs will improve the services they deliver. CRCs will be increasingly dependent on income through payment by results as the contracts progress. Reoffending rates in particular are critical to the future income of CRCs. CRCs are paid for reducing the number of reoffenders and also the number of offences that reoffenders commit. The latest data published by the Ministry show modest declines in the number of reoffenders, but 19 CRCs have not met their targets for reducing the frequency of reoffending.  These early results are disappointing and, if not turned around, could further threaten the financial sustainability of CRCs, restricting innovation and promised investment.

Recommendation: The Ministry should update the Committee by the end of April 2018 about the financial stability of providers, particularly following profit warnings issued by one provider, and set out any further changes it intends to make to get its rehabilitation revolution on track to ensure the prime goal of reducing offending is actually achieved.

The Ministry’s failure to pilot or properly understand its fundamental changes to the probation system has led to CRCs not investing in probation services, which have suffered as a result. CRCs are paid for the types of activity they undertake rather than the volumes of offenders they supervise, meaning their financial health depends on carrying out types of rehabilitation work which attract payment. The Ministry failed to anticipate the potential for lower than expected volumes of work flowing to CRCs.  In 2015-16 the volumes of work CRCs were paid for ranged from 8% to 34% less than anticipated, and are projected to be 16% and 48% lower in 2017-18.  Yet the Ministry only modelled changes of up to 2% during the procurement. Lower than expected volumes of work meant that CRCs faced the prospect of significantly reduced income over the life of the contracts. The Ministry also significantly overestimated the ability of CRCs to reduce their costs to match any fall in income when it agreed the contracts. HMPPS argued that it would not have been possible for them to anticipate lower volumes of activity and that the lower volumes can be explained by differences in the types of criminal cases heard by the courts and changes in the requirements attached to offenders’ sentences. However, it should have been well within the Ministry’s capability to recognise that the composition of criminal cases heard by the courts was changing and to monitor and respond to shifting trends in sentencing decisions.  The Ministry did not convince us that it was not possible to foresee or model the impact of factors within its purview. The consequence of this failure is that CRCs have not invested in probation services and offenders are not receiving the right support to help them address their needs.

Recommendation: The Ministry should, by April 2018, write to the Committee to explain how it will ensure any future changes to the contracts of this scope and scale are well thought through and piloted to minimise damaging unintended consequences.

The Ministry has still not delivered on its commitment to ensure that the third sector can help improve rehabilitation services. A cornerstone of the Ministry’s probation reforms was to open up the market to a diverse range of providers of rehabilitation services, including from the third sector. In our previous report on Transforming Rehabilitation, we were concerned that smaller expert providers were being squeezed out and recommended that the Ministry and HMPSS must deliver on their commitment to sustain a diverse market of suppliers. Overall, the extent of involvement of the third sector in delivering probations services has been woeful. HMPPS told us that this is another consequence of CRCs having less funding than anticipated and being unable to invest in more innovative ways of delivering probation services.  But we remain concerned that some charitable trusts have withdrawn from providing services for offenders as a consequence of the decision to extend statutory supervision to those sentenced for less than 12 months. This risk could, and should, have been foreseen by the Ministry.

Recommendation: The Ministry should, by April 2018, publish a comprehensive analysis of the gaps in provision of rehabilitation services across all CRCs that could be addressed through greater involvement of the third sector. It should use future negotiations to seek commitments from CRCs to make greater use of the third sector.

It is unacceptable that, almost half way through their seven year contracts with the Ministry of Justice, CRCs are not yet able to link their ICT systems to HM Prison and Probation Service. In a service that relies on successful joint working between multiple partners, it is essential that ICT supports, rather than frustrates, effective and efficient collaboration. In our 2016 report, we recommended that the National Offender Management Service (the predecessor to HM Prison and Probation Service) should implement a fully functional and reliable link between NOMS and CRC systems by the end of 2016. The Government accepted our recommendation and stated that its target for all CRCs to link their ICT systems was “summer 2017”. It is therefore lamentable that by the start of 2018, and over three years into the contracts, HMPPS has acknowledged that it has made little progress. The Ministry informed us that 14 CRCs expect to link their IT systems into the HMPPS system during the first half of 2018. Six CRCs plan to remain on their current arrangements, while one has yet to decide. The Ministry told us that the delays were largely a result of CRCs failing to invest in IT as a result of lower than expected income, but accepted it had contributed to this its delays in delivering a working link between systems.

Recommendation: HMPPS should, by July 2018, write to the Committee to confirm whether the 14 CRCs have successfully linked with HMPPS’ ICT systems as planned and, if not, explain the reasons for any further delay.

The Ministry still does not have complete and robust performance information, creating a risk that CRCs are not being held to account. We previously recommended that the Ministry needed to provide confidence that CRC performance data was reliable and complete. Yet at the time of our evidence session the Ministry had still not published performance information for five of its 24 performance indicators. There was no discernible improvement in the performance of CRC’s between October-December 2015-16 and April-June 2017-18.  The performance of CRCs against their contracts has been woeful and, on average, only 8 of 24 targets have been achieved.  The Ministry overcomplicated the performance measurement arrangements with too many targets, some of which, such as securing accommodation for offenders, are not actually within the control of CRCs. These weaknesses mean that the Ministry cannot be sure whether poor performance by CRCs is due to their lower than expected income or their incompetence. HMPPS told us that it has changed how it measures the performance of CRCs under the contracts, but both witnesses admitted that performance has not been as good as it should be. 

Recommendation: The Ministry should, by April 2018, write to the Committee explaining its rationale for changing how CRCs’ performance is measured and set out when it expects CRCs to be achieving their new targets.

It is not yet clear what the Ministry has received from CRCs in return for the contract changes it negotiated with them. In responding to the underinvestment in probation services, a situation of its own making, the Ministry agreed to provide additional funding of up to £342 million for CRCs.  The Ministry had also identified service credits – financial penalties for poor performance - with an overall value of £7.7 million, but only imposed £2 million of this. It waived £2.2 million and agreed that £3.3 million could be reinvested by CRCs. The Ministry has also identified that it is owed £9 million of taxpayers’ money by CRCs. It has not yet taken any action to recoup this money. We were disappointed that neither the Ministry nor HMPPS could point to a tangible list of commitments from CRCs as a result of the additional money. In particular, we are not convinced that the additional payments will not be used to prop up parent companies that own the CRCs. The Ministry could not adequately explain the wide variations in the fixed costs claimed by different CRCs, which ranged from 44% to 99.8% of total costs. There are also variations in the administrative costs charged by parent companies to CRCs. We expect the Ministry to vigorously defend taxpayers’ interests in its oversight of CRCs and in any future negotiation. 

Recommendation: The Ministry should, by the end of April 2018, write to the Committee with details of what the taxpayer has received for the extra money it has pledged to CRCs. As part of this, the Ministry should clarify what protections it has put in place to ensure that the additional funding is being directed towards frontline rehabilitation services, and take immediate steps to recoup the £9 million owed by CRCs.