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You can’t compete your way out of the consequences of competition
Another day, another high-profile critique of the ideological commitment to competition in commissioning markets. This time it’s from Kathy Evans, CEO of Children England, in response to the HCLG report on funding for children’s services — take it away, Kathy:
Among [the HCLG report’s] recommendations is a call for the Competition and Markets Authority to investigate how to make the market more competitive and control spiralling council spending. That is a laudable aim, but a serious review of the care commissioning marketplace will have to unravel the common assumption that more competitive markets create more competitors. In fact the opposite is true.
She goes on to highlight the important distinction between costs and price:
Many council procurement strategies attempt to cap, or fix, the maximum prices they’re willing to pay providers, which can sound like an obvious way to prevent excessive profit. But different providers don’t all have the same costs – smaller organisations with fewer places to sell will have higher costs per place than organisations with a higher volume of care places. Whatever their size, providers who pay better terms and conditions for staff, invest in training, qualifications and quality of living conditions, will have far higher costs than high-volume high-turnover businesses paying minimum wages in the cheapest properties and areas of the country. A uniform fixed price is less likely to be sufficient to cover the costs of smaller local organisations and higher quality more ethical employers; more likely to be sustainable for low-cost, high-churn business models.
It should go without saying that this is not a problem unique to children’s care services, or even to care services more generally; talk to almost any LA employee below the management tier, and you’ll hear tales of functions, assets and infrastructure having been outsourced, only to be re-provided at a substantially lower quality — and sometimes, after a little while, at a higher price than before. No wonder in-sourcing is all the rage, eh?
Something to emphasise in Kathy’s account is the point that not all costs can be measured in cash, as our friends at Nesta would surely point out. One such cost would be the eradication of smaller local providers:
Fee-capping can therefore be precisely what drives smaller and/or higher quality providers out of business, or forces them into mergers with the bigger companies who grow their market share; reducing rather than increasing the number of competitors. Having fewer larger providers with greater market power is what enables them to break free of council fee-caps altogether…
A similar dynamic can be observed with consulting fees in the community and voluntary sector, where a lot of genuinely good operators can’t actually secure the work available because they get undercut by larger consultancies that underbid them and then deliver shoddy service. To which the standard reply would always be “well, that’s just market forces, isn’t it?” — but as Kathy points out, if market forces are the problem, doubling down on the religion of “competition” isn’t going to make matters improve. This seems to be broadly understood by almost anyone on the frontline of service provision; the only question is how long we need to wait before it finally filters into the boardroom and finds an audience willing to remove their fingers from their ears.