How to get rid of a crisis: sell it off

Under a Coalition forged out of the need for public spending cuts, departments across Whitehall have been desperate to offload as much of their work as possible to the private sector.From child maintenance contact centres to community nursing, swathes of services once run by the state are now managed by outsourcing giants such as Capita and Atos.

Some departments have been badly burned by the failures of their contractors, none more so that the Ministry of Justice. Most infamously, G4S and Serco were found a year ago to have billed the MoJ for electronically tagging offenders who turned out to be dead, overseas or already in custody.

But the Justice Secretary Chris Grayling is determined to push ahead with what critics argue amounts to the privatisation of vital public services.

What's more, he is on the verge a fresh crisis in probation. Mr Grayling wants to hand over 70 per cent of the service to big business and mutuals later this year, reorganising probation from 35 trusts into 21 community rehabilitation companies (CRCs). The contracts are worth around £700m a year for up to a decade, with options for extensions taking the overall cost to around £8bn.

Preferred bidders to run the CRCs will be selected later this year, but preparations have been hit by an IT failure this month – with thousands of offenders' case files lost, frozen or wiped.

The Independent can reveal the GMB, Unison and the probation officers' union, Napo, are pondering a judicial review. They argue such a vital service should not be driven by profit and there should have been pilot schemes to test the idea.

They have just sent a third and probably final "pre-protocol letter" through lawyer Slater & Gordon, which states: "For the avoidance of doubt, we consider it would be unlawful for the MoJ to identify preferred bidders for the sale of probation services until the safety of the new scheme has been properly tested. If necessary our client is minded to take legal action to prevent it from doing so."

These, though, are far from the only issues hindering one of the most troubled outsourcing deals ever proposed.

The bidders

Although not-for-profit organisations are in the race for the CRCs, the bidding experience of the private contractors makes them overwhelming favourites to win the contracts.

Their records are under fire from unions and the Labour Party; Sodexo, for example, the world's 20th biggest employer, is bidding for around half the contracts. It was reported earlier this week that concerns have been raised over the French group's suitability for probation deals, due to problems with a contract managing Northumberland prison – there was a riot in March when more than 50 inmates took over an entire wing.

Sodexo is also in the running for the Northumbria package of work, which means it could end up running both probation services and the jail there. Industry insiders are concerned similar situations could crop up across the country, opening up prospects of conflicts of interest and effective monopolies.

A Justice minister says there are "safeguards and protections" but admits no discussions have taken place.

Elsewhere, Capita is the favourite for the lucrative London contract, but the MoJ fined the FTSE 100 group nearly £54,000 from January 2012 to March 2014 for failing to supply interpreters on a language services deal. The Geo Group and Amey are chasing a number of CRCs but, working together, they have been fined £645,000 in performance penalties on three prison escort and custody contracts.

Competition

The deadline for bids is Monday and, despite plenty of interest, the evidence points to a lack of bidders with not-for-profit groups concluding they simply cannot compete. For instance, the Shaw Trust, which was down for areas spanning Dorset, Devon & Cornwall and Gloucestershire, Avon, Somerset & Wiltshire, has just pulled out.

Ian Lawrence, of Napo, says: "This is not a true competition. It is clear the Government is enabling multinational firms to have a monopoly on our probation service. Charities, third sector organisations and mutuals simply won't be able to bid against large corporations who will put profit in front of the needs of service users and communities." Mr Grayling told The Independent: "We have a strong mix of bidders from a diverse range of partnerships."

Break clause

Should Labour win next year's general election, one of the first things that the party wants to do is overturn the contracts.

That, though, might not be possible.

The CRC contracts will typically last 10 years. In April, the shadow Justice Secretary Sadiq Khan wrote to the MoJ's permanent secretary, Ursula Brennan, demanding assurances that the contracts contain "suitable break clauses or other opportunities for them to be terminated" by a future government "without the taxpayer being faced with huge financial penalties".

In a recent reply, Dame Ursula said that the final terms were still "subject to negotiation", but hinted strongly that triggering any break clauses would prove hugely expensive.

"Standard procurement practice confirms that seeking to provide for voluntary termination at little or no cost to the department would drive significant risk pricing from bidders," she stated. "I believe the voluntary termination clauses we propose will represent a reasonable and balanced position for the MoJ."

Mr Khan is furious: "I don't want the next Labour government lumbered with £8bn-worth of failing contracts we're unable to end without the taxpayer being even more ripped off."