Commissioning children’s services – special report

Last week’s government-commissioned study on the market for children’s services called into question councils’ dual role as commissioner and provider, particularly in services for looked-after children.

Authors PricewaterhouseCoopers found councils preferred to buy services from their own providers rather than purchase them from the private sector, in both fostering and residential care.

This was distorting the markets and seemingly preventing councils from procuring the best value services for children, the consultancy said, while authorities’ perception that their own services were better value was not evidenced-based.

The report called for a much clearer separation between councils’ commissioning and provider roles, so that it embodied a commercial relationship and ensured services were chosen on value rather than sector.

And it also said open dialogue between councils and providers was vital to market development and achieving value for money.

In general, the report gave a poor assessment of the state of council commissioning, finding skills were in scarce supply and limited evidence of a link between cost and quality.

Councils’ dual role:

A group of six councils studied by PWC – from across the country and including counties and urban authorities – all sought to minimise private provision and preferred commissioning in-house services.

PWC criticised this from a number of standpoints:

• It said all councils believed that in-house provision was cheaper than private provision but there was insufficient evidence to back this up.
• Councils had a “political” opposition to the private sector based on the idea that the profit motive was inappropriate for children’s services.
• It created an uneven playing field in the market, which meant in-house providers did not have to produce the level of costing and price information that external providers had to produce.
• It bred mistrust between councils and private providers when effective commissioning was based on strong links between the two.

Andrew Rome, a spokesperson for the Independent Children’s Homes Association, which represents private providers, says his members are concerned that councils make wrong decisions about children based on their preference for in-house services.

But he adds: “Because councils are also our customers, providers find it difficult to challenge that.”

He says ICHA members are concerned that cost is increasingly the predominant driver of commissioning, meaning independents lose out.

Paul Fallon, co-chair of the Association of Directors of Social Services children and families committee, admits this is a perception on the part of private providers, but claims it is a false one.

Fallon, who is head of children’s services and director of social services at Barnet Council, says: “Commissioning is value-for-money driven. Each penny I spend on one child cannot be spent on another. That requires considering quality and cost.”

However, he says that the public sector’s perception of the private sector – as serving children less well because of its profit motive – is also false.

The PWC report questioned the accuracy of the unit costs published by councils for their own, as opposed to external, services, suggesting that certain elements were not included.

These costs showed that in 2004-5, councils’ weekly bill on in-house foster care was £295 per child, with £803 spent on externally placed children.

Fallon says he would not disagree with PWC’s conclusion: “Barnet would come up as a relatively high-unit cost authority because we cost in every element, including an element of my salary.”

He says the authority’s weekly unit costs for all looked-after children, in foster and residential care, was over £800, adding: “Some authorities publish figures of £300 and £400. I know that can’t be right.”

Splitting councils’ commissioner and provider functions

The report also said that progress would not be made until there was a much clearer separation between councils’ providing and commissioning functions, calling for the Department for Education and Skills to pilot a model for this in a few authorities.

This would remove conflicts of interest for councils, stimulate “more explicit competition” between providers reducing cost, and encourage more transparent pricing from in-house providers.

What it means by separation is a “commercial relationship” between councils’ commissioning function and their in-house providers.

Rome backs greater separation. But while Fallon admits some separation should exist he warns against “erecting a monolithic bureaucracy” to manage the divide “that will take up time that ought to be spent on assessing and meeting children’s needs”.

More fundamentally, he disagrees with the idea that a “purchaser-provider split” is the answer to councils’ commissioning problems in children’s services.

However, his proposed solutions – better working relationships and joint planning between providers and commissioners, and joint commissioning by councils to achieve economies of scale – chime with PWC’s analysis.

The DfES will now consider the study and its recommendations. It will be worth seeing how far it influences the looked-after children green paper, expected next month.

Useful links

PriceWaterhouseCoopers