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The perils of out-sourcing public services

Written By: - Date published: 9:00 am, December 8th, 2010 - 16 comments
Categories: public services - Tags:

One of the features of the neoliberal revolution has been the outsourcing of public service delivery, usually to not-for-profits, sometimes to profit-making entities like private hospitals. Whanau Ora is an extension of this. Two recent stories have exemplified the risk of this model.

First, there’s Hekia Parata’s mates, the Taeaomanino Trust. A family outfit with no track record and, seemingly, inadequate internal records keeping and spending checks, the Trust is typical of many organisations contracted by Social Development and Health. And it is the ideal breeding ground for corruption – all this money flowing in from the ministry, often nebulous performance goals, and a bunch of mates or family running the operation. It seems that $100,000 of our money has gone missing from the Trust’s coffers and the Police are investigating. Nonetheless, the Trust has just been handed a million dollar Whanau Ora contract. Whanau Ora is only going to see more of these organisations putting their hands out and more public money being spent on surprisingly large salaries and expense accounts for little practical outcome.

So, the first problem with the model is that small organisations that are prone to corruption are being handed public money. Within ministries and departments that risk of corruption is countered by the professional culture and the checks and balances that large, established institutions have, which small, new ones lack.

Second, there’s the Otaihape Health Trust in Taihape. Ruth Dyson has been doggedly asking questions in the House about this for months. Otaihape is contracted by the Whanganui District Health Board to provide a wide range of health services to the Taihape population: “its 24-hour access to PRIME-trained registered nurses, its medical beds, its in-patient palliative care, its respite care and day-care services, its maternity services, its meals on wheels, and its mortuary service”. Insufficient funding in the Budget has forced the DHB to make cuts, and its contracts for non-DHB providers has been a logical place to start. Initially, the Otaihape nurses were told they would have to take a 30% pay cut or the centre would close (it’s effectively a hospital, even the Minister called it that when denying any threat of closure). Now, the Trust is definitely going under and the people of Taihape stand to lose all those health services. Tony Ryall’s response: “The Ōtaihape Health Trust is not owned by the Government”. In other words, ‘not my problem if they can’t operate within their budget’. Never mind that his government sets the DHB’s budget, which contracts with Otaihape, so he directly set this chain of events in motion.

So, the second peril of outsourcing is it gives a government a means to cut services by stealth simply by reducing the pool of money for contracts to private providers.

The neoliberals claim this model is all about efficiency – competing outfits bidding for public contracts gets better value for money. As if there are multiple health providers sitting around in Taihape trying to outbid each other. I dare say the cost of the tendering and contracting processes outweighs any supposed efficiency gains.

But you can see why it’s attractive to a government, particularly a bad government, to get someone else to do the actual work. It removes the immediacy of responsibility for the government (much as the DHB system does) – the minister and the ministry can just throw up their hands and say ‘there’s nothing we can do, it was the private provider!’

What if instead, and I know this is a wild thought, we actually care about delivering good value for money services to those in need then we should want those services delivered by accountable, perpetual public institutions.

16 comments on “The perils of out-sourcing public services”

  1. ianmac 1

    I guess Tony Ryall can cause a squeeze which lead to the loss of small units as this will only affect a small number of people and get lost in the “greater efficiency” and “moving funding to frontline services”. Therefore not a biggie in the minds of the voting masses.
    Hang on the Taihape unit was very much frontline!

  2. smhead 2

    PHOs aren’t owned by the government either. So what’s the difference between whanau ora and PHOs? Oh that’s right, whanau ora are Maori organisations, so Marty says they’re more likely to be corrupt and it’s okay to bash them.


    [lprent: You’ve just stated that an author said something that they did not. I do not like people trying to put words in the mouths of authors. In fact I find it disgraceful. Two week ban. ]

    • Bright Red 2.1

      Show me where Marty says it has anything to do with race. You can’t.

      You’re just being a scumbag, smhead, and refusing to engage in the issue.

    • Rosy 2.2

      hmm many community PHOs are operated by Maori providers as well. No-one is calling these corrupt. It’s not about race.

  3. tsmithfield 3

    OTOH, Rob has written a recent post about the crap job that WINZ ( a public body) is doing about administering payments. So going by this example, keeping things within the “public” house doesn’t make things better.

    • Bright Red 3.1

      I don’t see WINZ making 1% of payments in error as a huge problem. I bet it’s far better than you get from small private outfits. I don’t think r0b’s saying WINZ is doing a crap job, he’s just pointing out that it’s a far bigger issue than fraud.

      You can understand why overpayments happen at WINZ. The typical case will be that a person gets a job and doesn’t tell WINZ like they’re meant to, so WINZ keeps paying the benefit until it gets notification from IRD. Then, WINZ has to get the money back from the former beneficiary. Happens all the time. Happened with me in my younger days.

      • tsmithfield 3.1.1

        Two good things about outsourcing:

        1. There is a strong motivation for the private entity to perform or lose their funding.
        2. Its easy to terminate the program if its not viable. A lot harder to do that with government departments.

        • Rex Widerstrom

          Which, in a perfect little nutshell, is why I argue for private prisons. Yank their financial chain and they’ll do what you want… including increase genuine rehabilitative programs. They can even be paid a “commission” based on the number of prisoners who go through their programs and don’t reoffend after X years.

          Try reforming any country’s state-run corrective services, however… there’s no incentive to change because there’s no reward (other than praise from a Minister whom no one respects anyway) for doing so. And if you happen to have a Minister who quite likes the idea of prisoners being released through a revolving door, you’re doubly screwed.

          And that reminds me of another benefit – contract law. If a progressive government were, say, to sign a 10 year contract with a progessive corrections provider setting rehabilitation etc as goals then even if they lost office after one term the contract – and the goals – stand; long enough for the benefits to become apparent.

          That doesn’t mean I’m in favour of it for everything, by any means. But prison is one area in which I’ve seen it work brilliantly (and also, if we look to the US, fail abysmally, I admit – which is why you’re careful in choosing your provider and drafting your contract).

          • ak

            ….prison is one area in which I’ve seen it work brilliantly

            Aye, haven’t we all – the contracting into freezing works in the late 60’s doubled the pay of some – but now they do three times the work for less than originally. Ditto local govt contracting – lots now being taken back in house.

            Big prob is the market’s inherent race to the bottom: over time an overwhelming imperative to cut costs. i.e. staff and service. Which is what we find…..

            … if we look to the US, fail abysmally ….because they’ve been at it longer.

            • Rex Widerstrom

              The model I’m thinking of doesn’t send prisoners out to work for private industry at all*. Nor should any prison, IMO.

              The benefits I’m talking about arise because the contractor is paid on things like number of assaults on prisoners and guards, number of released prisoners who reoffend and so on (with less = more money, obviously).

              In fact the payments are so generous as to have incentivised the prison operator to invest in post-release support for things like housing and finding work as these are known to decrease recidivism and thus increase their income.

              * The exception being prisoners who are on day release to work for not-for-profits like food banks and secondhand furniture and clothing stores. They’re paid by the prison system, however, not the “business”.

      • Vicky32 3.1.2

        “The typical case will be that a person gets a job and doesn’t tell WINZ like they’re meant to, ”
        The problem lies, Bright Red, as you have probably experienced, that if while on UB, you get a job, and tell them “I will be starting work two weeks from now” then WINZ cut the benefit from the day you inform them! (Even if they’re not supposed to do that, and they’re not.)
        But you don’t start work for 2 weeks, and you’re not paid for another 2 weeks after that! So you do as I have done in the past, and tell WINZ only when you have the money in your hand, and they establish a debt even though every cent they paid you for those 4 weeks went in food, clothes and travel to the new job!
        Then the problems really start, when HCNZ accuse you a year later of not having informed them that you were working and want a year’s worth of income-related rent back! (That happened to me, but luckily I was able to prove that I had informed them, that my ‘tenancy manager’ was an incompetent who had lost my file etc.. )
        Starting work can be as big a nightmare as being on UB in the first place!

        • Lanthanide

          I am SO glad I have never had to deal with any of that shit. Long may it continue. Nothing aggravates me more than other people failing to do their job and me taking the consequences.

          • TightyRighty

            you got a typo in there,

            should read “Nothing aggravates me more than other people failing to do a job and me taking the consequences”

            • Colonial Viper

              rather, should read

              “Nothing aggravates me more than National failing to do their job and 170,000 unemployed New Zealanders taking the consequences”

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