Capgemini acts as financial and commercial advisors in prisons procurement programme.
I was first impressed by Capgemini’s ability to quickly become a part of the team. Over the course of the project their assertive assessment of complex issues was one of the critical comments that allowed us to realise the substantial savings that resulted from the competition. Ben Hughes, Head of Procurement, Major Contracts, Ministry of Justice
In its continuous resolve to reform the justice system so as to ensure that it is more clearly seen as a public service – working for the local community, the UK government introduced competitive tendering for the country’s prison services. Such a competition would help the government deliver multiple objectives: increase in capacity, value-for-money, service/performance improvement, productivity and innovation. In 2009, the then Justice Secretary, Jack Straw, announced plans to open up competition for the management of five prisons. Birmingham and Wellingborough were chosen after being identified as poor performing, publically run prisons, Buckley Hall and Doncaster had previously competed contracts that were due for renewal while Featherstone 2 was a new prison.
With bids invited from the public, private and third sector providers, the Ministry of Justice’ (MoJ) competition policy would result in a current operational public sector prison being transferred to private sector management for the first time in England and Wales.
This multi-billion pound competition programme was run by the Major Contracts team in the Ministry of Justice who, in January 2010, after a competitive tender process, appointed Capgemini to act as its independent
financial and commercial advisor.
“Contributing to the successful delivery of this high-profile procurement programme represents an important milestone for Capgemini in our ongoing support of the Government’s efficiency and reform agenda,” said Simon Derbyshire, Capgemini Vice President, Justice & Security UK.
Capgemini’s consultants worked as part of an integrated procurement team to support and advise the MoJ in four main areas:
- Design of the contractual payment mechanism: To drive financial efficiencies through the life of the contract by fixing appropriate elements of the cost base at competition stage, providing sufficient flexibility to cope with future scope and service changes, balancing the allocation of risk between the contractor and the MoJ as well as providing a mechanism for contractors to pass on cost changes and savings throughout the contract term – all through a mechanism that is simple to manage and administer
- Design of standard and pre-defined financial models: To allow the Capgemini team to analyse costs and prices so as to provide detailed bidder-by-bidder comparisons and insights
- Design of the financial evaluation methodology: To put in place a robust financial evaluation methodology that met Government accounting rules and private sector accounting standards. This would allow final financial submissions to be fairly and accurately compared through the use of a net-present-value based financial metric
- Delivery of the final financial evaluation and due diligence: To carry out a comprehensive review of bidders’ financial submissions covering all financial models and supporting assumptions, culminating in a final financial assessment to support both the price and non-price elements of the overall competition evaluation.
In March 2011, the Justice Secretary Kenneth Clarke announced the result of the competition in a statement to Parliament. Birmingham was privatised; Doncaster and Featherstone 2 were also awarded to private sector firms, with Doncaster let under an innovative Payment by Results pilot scheme. Buckley Hall was kept in the public sector and Wellingborough was withdrawn from the competition.
The financial benefits delivered by the competition were significant. Over the current Spending Review period, the new contracts will deliver savings of over £21 million for the three existing prisons and, over the 15-year life of the contracts, £216m. The new Featherstone 2 prison will be delivered at more than £200m less than the originally approved business case cost.
In addition to the impressive financial savings generated by the competition, Capgemini delivered the necessary contractual mechanisms to allow the efficient and effective contract management of the 15 year contracts by the MoJ. These include:
- A clear, robust and detailed set of financial models at each prison that underpin the overall price offered by each successful bidder to give the MoJ the necessary transparency and understanding of the contractor’s baseline costs so as to monitor and control future prices
- A payment mechanism designed to allow the overall price to change in response to future service changes without having to be overly reliant on the formal contractual change processes.
“Cumulative savings over the lifetime of the contracts for the three existing prisons are very impressive at £216 million,” said Kenneth Clarke, Lord Chancellor and Secretary of State for Justice.